Fund Objective

To provide income together with some long-term capital growth from a portfolio of investments.

View on Past Performance

October was one of the worst months in stock market history, as the effects of the credit crunch tangled with a rapidly deteriorating global economic growth outlook. To add to this, redemptions from hedge funds turned many of them into forced sellers, which added to the widespread pain as they scrambled to get out at any price, regardless of the quality of the underlying investment. The Fund was dragged lower in this dire environment, dropping by 12.7% over the month.With stock markets plunging, the Fund's equity weighting dragged it lower over the month. Within the market, mid and small caps proved more vulnerable due to their greater reliance on the faltering UK economy. Corporate bonds have also been pushed much lower amid the credit crisis and economic downturn, which has reduced some of the defensive qualities from which the Fund would normally benefit. Of more use, however, has been the appealingly high level of income they continue to pay.It was a disappointing month for most of our fixed-interest funds, particularly those with large weightings in bonds issued by banks, which were adversely affected by the turmoil surrounding the industry in October. Our equity performance was more mixed. Smaller companies specialists such as Chelverton and Discretionary unit were hit relatively hard by the mounting fears over the UK economy.Structured products have had a tough couple of months, due to rising volatility and concerns over the creditworthiness of the institutions underwriting them. We are comfortable with the backing of our structured products, and this has presented us with opportunities to buy defensive products that now offer a great risk-reward trade off. To this end, we switched between Citigroup products in October, and added two Merrill Lynch products at what look to have been highly attractive buying points.

Future Expectations

The immediate outlook for equities and bonds remains unclear. On the one hand, fear is currently gripping markets, which has pushed equity and corporate bond prices down to extremely attractive values, giving them tremendous appeal as long-term investments. Corporate bonds, in particular, look undervalued and are paying a high income to holders while they wait for prices to rise.However, short-term risks are still plentiful, not least the unknown quantity of hedge-fund forced selling, which may lead to more falls in the short term. As long-term investors, we are happy with our current positioning and, uncomfortable as it is, see potential short-term volatility as a price worth paying for strong long-term returns.

Fund Details