Fund Objective

The objective of the Fund is to achieve capital growth.

View on Past Performance

Q308 was one of the most volatile periods in recent memory. Most of the downturn in the large cap markets occurred just in the month of September as the S&P 500 dropped nearly 9% while the Russell 1000 Value lost -7.35%.The dominant story was the beleaguered Financials sector. Lehman Brothers collapsed, Washington Mutual was taken over by JP Morgan; Wachovia was acquired by Wells Fargo and Merrill Lynch fell into the arms of Bank of America. In addition, Fannie Mae and Freddie Mac were nationalised, Goldman Sachs and Morgan Stanley gave up their investment bank status and the US Treasury loaned $85 billion to AIG, the largest US insurer.Most significantly, Henry Paulson, the US Treasury secretary, proposed an unprecedented $700 billion financial super fund with the purpose of buying up many of the toxic assets that remain on financial companies' balance sheets. The (initial) failure of Congress to pass this legislation on 29 September led the markets to the largest one day decline since 1987 only to be followed the next day with one of the largest rallies due to the belief that a revised proposal would pass shortly.The other large story was the precipitous rise and fall in the price of crude oil, which peaked at $146 in July, then fell significantly, settling at around $100 by quarter end.Consumer Staples was the only sector with a positive return (+4.1%), followed by Healthcare (-0.01%) and, surprisingly, Financials (-0.1%). The fund overweight in Healthcare, combined with stock selection (Amgen and Covidien which appreciated significantly up to the time of sale) was positive.

Future Expectations

While there are still many headwinds (most notably homebuilding and financials) facing the US market, we believe there are many attractive companies and sectors despite current economic and financial conditions. It is our belief we are on the cusp of a US market rebound as consumer confidence may change for the better with the upcoming election.Commodity inflation will continue to be a drag, but there are strong signs of easing. The Federal Reserve's temporary pause in lowering interest rates, until the combined rate cut with other monetary authorities, should be a positive for the US dollar and also reduce some inflation issues.We believe the slowdown in growth will last only one or two quarters. Unprecedented measures in monetary and fiscal policy will benefit alongside declining oil and gas prices.Even with sub-par GDP growth of 1.0-2.0%, profit margins and earnings in 2009 should rebound from currently depressed levels in the range of 5-10%+. Increased unemployment continues to be a risk.The Relative Value Large Cap philosophy and process remain unchanged and stock selection continues to be strong. It is exactly in such times as these that great investments can be made which will provide significant future growth potential for investors.

Fund Details