Fund Objective

To achieve long-term capital growth for investors.

View on Past Performance

The third quarter of 2008 presented an unprecedented challenge in terms of investment conditions. Despite making substantial changes to contend with the prevailing environment, the Fund significantly underperformed its benchmark, declining -18.6%, against the index return of -11.2%. The market experienced a big switch out of oil and gas, metals, mining and general commodities, into the financials, consumer-goods and consumer-service sectors in July and August.The catalyst for this rapid change in fortunes was the oil price peaking and then falling from highs, taking sentiment on commodities and utility stocks with it. Increased concern for the pace of slowing global economic activity then hit cyclical areas, with industrials most notably impacted. Investors sought reliability and invested in the more-defensive areas of the market.The largest negative contributions to Fund performance came from industrial holdings, and from our avoidance of stocks within sectors that rallied strongly, most notably consumer areas. While we moved to add to defensives and consumer-related areas, and reduced exposure to industrials, materials, and oil and gas, it is fair to say the moves were not significant enough.However, Fund positions that did have a positive contribution included food producer Nestle and household products manufacturer Unilever. Despite all the negative newsflow surrounding financials, our exposure to this sector had a minimal impact on the Fund, which benefited from good stock selection within banks and an overweight to insurance companies. Elsewhere, the Fund also benefited from holdings in the healthcare sector, including Icon, Bayer and Roche.In terms of positioning, going into the period the Fund was overweight industrials, materials, energy and utilities. During the quarter, the Fund reduced these areas significantly in reaction to rapid reversal in fortunes for a number of holdings. This was accompanied by a corresponding reduction in the underweight in financials, and additions healthcare and consumer related sectors. After such changes, the Fund is more balanced across defensives, cyclicals and financials.

Future Expectations

While there may be more volatility in the near term, as the impact of the global credit crisis unwinds, we believe that on a longer-term view Europe offers many attractive investment opportunities. European valuations continue to look cheap on a relative and historic basis - we believe Europe offers attractive long-term investment opportunities for investors from these levels.

Fund Details