Fund Objective

To achieve a balance between income and capital growth.

View on Past Performance

Markets began the year with strong positive momentum. Corporate activity was a powerful theme, ensuring considerable volatility and wide divergence in individual stock prices. Low borrowing costs, under-geared balance sheets and the generally favourable investor reaction being afforded to companies undertaking aggressive strategies is encouraging management to develop M&A plans.P&O, BOC and Arcelor served to illustrate the global nature of this theme. Bond markets also enjoyed early gains but some of these were relinquished as the yields on ultra long dated gilts of only 3.5% and real yields on index-linked gilts of close to zero finally caused buyers to pause and consider their sanity.The fund continued to benefit from a high equity exposure, particularly in UK, Europe and Asia. The long-standing underweight in US equities proved appropriate again, and there appears little reason on relative grounds to change this stance.Fixed interest exposure was reduced by about 2½% during the month as the unjustified drop in yields provided an opportunity to sell the holding in Treasury 8% 2021 - the longest dated stock in the portfolio. This leaves the portfolio with very short duration, reflecting our view of sector valuations.In the UK equity portfolio, the holding in Woolworths was sold prior to a disappointing trading statement. Holdings in Bovis and Wincanton were sold also, as prospects are adequately reflected in valuations. A new holding in Croda International was introduced. Croda represents one of the few remaining UK chemical companies with a portfolio of businesses that offer long-term growth potential and price stability.

Future Expectations

Although most of the positive factors that have driven exceptional equity market returns over recent months remain in place, value is becoming more difficult to find and some pressure on earnings forecasts is beginning to appear. As such, whilst we expect to maintain the basic profile of the fund, we will retain some cash to take advantage of opportunities that arise and we will be increasingly willing to realise gains from situations where valuations could be at risk.

Fund Details