Fund Objective

To achieve capital growth.

View on Past Performance

October was an awful month for all equity markets but a relatively quiet one for the Fund. We made no significant changes to geographical weights or sector biases. In the UK we sold Intermediate Capital, the largest UK mezzanine capital provider. On the buy side we participated in the refinancing of Barclays Bank, buying the 9.75% convertible at a discount of over 20%.October was another very weak month for equity markets, with only a late rally preventing the worst monthly returns since October 1987. Globally there were no hiding places with local currency returns even worse than in the UK. The continuing crisis in the credit markets led to the UK Government putting together an equity package to recapitalise RBS, HBOS and Lloyds TSB and also provide liquidity more widely.This action was followed by similar moves across Europe. Concerns moved from the solvency of banks to worries about the extent of the global slowdown and there was no support for equities. Concerted interest rate cuts provided a little relief and markets rallied. We also saw a huge rally in the yen and dollar as local investors repatriated funds.

Future Expectations

The recapitalisation of the banking system may now be discounted by investors but the deleveraging of their balance sheets has a long way to go. Global growth is clearly slowing rapidly which is yet to be fully reflected in earnings estimates. On the positive side, however, interest rates have been cut aggressively, inflation will fall rapidly and some fiscal stimuli are also likely.Equities have rallied sharply from an oversold position but still look attractive compared to government bonds, though less so compared with high quality corporate debt. We probably saw the low point in October, but markets are likely to remain volatile.

Fund Details