Fund Objective

There is no fund objective available from this fund manager.

View on Past Performance

In the six months to 31st July 2008 the return on B Net Income Shares was -2.1%*, compared to the The FTSE 350 index, excluding companies in the Tobacco Sector, which produced a total return of -6.2%**.It is challenging to be succinct in describing the uncertain macro economic backdrop but what we do know is that the 'credit crunch' of last year has developed into a major global financial crisis which in turn has started to Baillie Gifford British ex Tobacco Equity Fund a sub-fund of Baillie Gifford UK & Balanced Funds ICVC Authorised Corporate Director's Interim Short Report for the period ended 31st July 2008 impact negatively the 'real' economy.The ailing housing market is perhaps the most prominent domestic example of this. Moreover, the inflationary pressures in the economy limit the Bank of England's flexibility to cut interestrates as growth slows further. While we think that economic forecasting is a thankless task as modern, complex economies rarely move along predictable lines, we don't think it at all unreasonable to expect tougher times ahead in the UK.Last year when we first became concerned about the outlook, we significantly reduced exposure to UK (and US) consumers in the portfolio. This helped performance in this period but the portfolio was not left unscathed as thedomestic economic backdrop deteriorated more quickly than we had thought and this led us to sell holdings in building related stocks such as Wolseley and Travis Perkins. The holding in the Royal Bank of Scotland was lso reduced as we became more downbeat on its prospects.

Future Expectations

Despite the general gloom, some perspective is required. We believe that challenging times throw up interesting opportunities for the long term investor. For example, we have used share price weakness (unjustified in our view) to add to our holdings in the life insurance sector by taking a new holding in Legal & General. New holdings were also taken in the support services company Bunzl and catalyst producer Johnson Matthey because they offer solid growth potential at attractive valuations.Overall, we continue to favour well managed, soundly financed companies with good growth prospects. We continue to think that over time a portfolio of these stocks can generate attractive returns.

Fund Details