Fund Objective

To achieve capital growth with income generation as a secondary consideration.

View on Past Performance

After showing surprising resilience, economic data took a turn for the worse with rising inflationary pressures, a further deterioration in the housing market and initial signs of rising unemployment. With the MPC forced to place greater emphasis on containing inflation expectations than providing the foundations for economic recovery in 2009, sentiment has moved to the expectation of rate rises, the consequence of which could be a more pronounced downturn in economic activity.Output and industrial indicators already show that activity has slowed fairly sharply and the full impact from the housing market downturn and the credit crunch has yet to be felt by the consumer.

Future Expectations

The market remains polarised between the negative outlook for financial and consumer stocks, and resources which are benefiting from commodity inflation. Whilst a range of UK companies are well-placed to benefit from an expansion in global economic activity, outside the resources sector many earnings estimates look increasingly optimistic as markets come to appreciate the implications of a deeper downturn in the UK economy.Additional investment in the fund resulted in our cash level being temporarily above its target at the quarter end. Whilst volatility is likely to continue, we see selective opportunities to buy good quality companies on valuations which we believe will prove attractive over the longer term and our emphasis remains on larger companies with good earnings visibility. We are selectively adding to resources in order to maintain a full market weighting and continue to favour traditionally 'defensive' sectors.We believe that valuations in the Telecommunications sector fail to reflect the potential for growth in volume and pricing power of non-voice traffic. We also see prospects for growth in the Pharmaceuticals sector with reduced litigation risk at favourable valuations compared to other defensive sectors.We also believe that sentiment towards the banks will remain low as the implications of rights issues is digested in an environment of slowing economic growth, rising unemployment, and increasing difficulties over home loan payments. The downturn in mortgage approvals (a leading indicator of house prices) to below the lows of the early 1990s points to further pressure on the housebuilders, whilst rising mortgage rates and utility bills will mean lower disposable income at a timewhen consumer confidence is at its weakest level since 1992, suggesting consumer facing sectors will remain under pressure.

Fund Details