Fund Objective

The Fund seeks to achieve a combination of income and some capital growth.

View on Past Performance

In August the fund was ahead of median. Positives for the month included Lonmin, which received an opportunistic cash bid from Xstrata. In addition, a number of stocks perceived as interest rate sensitive did well, such as Daily Mail, Friends Provident and Investec. All three stocks still look very undervalued to me on a 2 year view.Against this, Davis Service Group detracted from performance following comments from the company that management had marginally reduced their expectations for the group for 2008 and 2009. During August the fund switched its Alliance & Leicester holding into HBOS, following A&L's agreed bid from Santander. HBOS shares appear to offer much better recovery prospects due to its large discount to tangible book value.The fund also started a new holding in Northumbrian Water at a little under 300p, taking advantage of a dull share price. I like the inflation index linking, lack of economic sensitivity and RAB growth of water stocks. The fund also reduced its Lonmin position to help pay for this purchase at a premium to the value of Xstrata's cash bid.

Future Expectations

Corporate newsflow over the autumn is likely to highlight deteriorating economic conditions, especially for UK centric companies, and cost cutting initiatives are likely to be a feature. I do not see any short-term let up in the prevailing difficult credit market conditions. With rising food and energy prices, disposable incomes remain under pressure and I retain a cautious stance on the consumer and the portfolio continues to be defensively positioned overall.

Fund Details