Fund Objective

To provide capital growth and income.

View on Past Performance

Equity markets fell sharply over the third quarter of 2008 with the problems associated with the sub-prime mortgage crisis in the United States escalating worldwide. Within capital markets, the better performing companies have tended to be those with relatively strong balance sheets together with those in perceived defensive areas such as food retailing and utilities.Against this has been the notable weakness of many companies whose businesses are more orientated towards the business cycle or who are more debt financed. We have witnessed major movements in globally traded commodities, with sharp rises recorded at the beginning of the period and pronounced falls towards the end of the quarter.In particular, the oil price rose to a peak in the middle of July and has since fallen away quickly as markets have grown increasingly concerned about the sustainability of global growth. In response to these difficult trading conditions, we have seen relatively strong performances from the likes of the defensive Tesco and Nestle and also two more recent additions to funds, McDonalds and Jeronimo Martins, the international food retailing business.We have begun to reduce exposure to European markets in favour of the US and more particularly dollar denominated assets or dollar earnings. This reflects a strong theme of a cautious stance regarding the near term prospects for sterling and, to a lesser extent, the euro.

Future Expectations

On a global perspective, economic conditions are likely to get worse before they start to get better. The world's banking system is under significant strain and further casualties are almost certain, perhaps even of hitherto seemingly safe household names. The forced reduction in leverage throughout the hedge fund universe may also prove problematic.However, on a slightly brighter note, the fall in the oil price and the easing of inflationary influences should allow interest rates to fall in the developed world, and even China has embarked tentatively on a programme of monetary easing. Equity markets are certain to remain highly volatile in the short term but it is at times of fear and tension that the best investment opportunities emerge for patient, long-term investors in solidly-financed, well-managed companies.

Fund Details