Fund Objective

To achieve growth in capital and income.

View on Past Performance

This month the Fund returned -10.7%, while the Index returned -7.3%. September was a month of considerable volatility. At the beginning of the period, fears emerged about the viability of Fannie Mae and Freddie Mac, the government sponsored enterprises which are responsible for a significant amount of mortgage finance in the US. The failure of these entities would have brought the housing market to a standstill.The decision of the authorities to nationalise them led to a relief rally, which quickly dissipated on rumours of further institutions in difficulty, confirmed with the collapse of Lehmans, the sale of Merrill Lynch to Bank America and the nationalisation of AIG. This brought home to politicians the need to deal with the issue on a more systematic basis, and Paulson announced his Temporary Emergency Recovery Programme which led to very sharp rally but then a setback as the politicians wrangled.Our investment in the SB Bear Accelerator benefited from rising volatility. We took the decision to sell this investment in its entirety. Against this, weakness across many equity markets but particularly in the emerging markets adversely affected performance.

Future Expectations

Looking forward, the outlook for domestic demand in the US and UK continues to be poor, reflecting the impact of the credit crunch. This may be mitigated somewhat by the prospect of interest-rate cuts, although easier monetary policy may have negative effects in emerging markets where inflation is already running at fairly high levels.In this environment we believe that investment performance will remain mixed, with businesses exposed to highly indebted consumers in Western countries likely to struggle while companies producing raw materials, satisfying consumer demands in emerging countries or benefiting from infrastructure spending are likely to find activity is robust.Meanwhile, the banks continue to make massive write downs and strengthen their capital bases. The credit crunch is not over yet, but the solution to the problem is being put in place.

Fund Details