PROFITS RETURNING TO PRE-CRISIS LEVELS

Our mandates outperformed in September with the best performers including Fiat, Edenred, Credit Agricole, Rexel, Software AG and LVMH. We reduced our investment in Zodiac following very strong performance – the share price has also been boosted by Safran’s recent takeover approach. We also cut back our holding Swiss Re with better opportunities appearing elsewhere. We purchased a new position in Air Liquide and added to our holdings in Eurotunnel and Edenred.

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FINANCIAL SURVIVORS ENJOY EASIER CONDITIONS

Our mandates outperformed the markets marginally in August. We sold our position in International Power following the reverse takeover by Suez. The share price now more fully recognises the value of the assets. We top-sliced our holding in ASML following a period of strong out-performance. The portfolio has a strong bias to firms based in northern Europe-which has better growth prospects than the south-and more than half comprises cyclical and financial shares.

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BUSINESS CONDITIONS REMAIN FAVOURABLE

Our mandates outperformed in July. We purchased new positions in Dassault Systemes and Swatch Group and cut our investment in Michelin – its business has not developed as well as we expected and the outlook for the car industry has deteriorated. The portfolio continues to have a strong bias to firms based in northern Europe, which has better growth prospects and less severe financial problems than the south.

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NORTHERN EUROPE OFFERS BEST PROSPECTS

Our mandates outperformed in June. The US dollar remained strong over the month and our investments with significant sales exposure to the currency performed especially well, including SGS, BiC, Legrand and Assa Abloy. Many of our financial investments performed poorly as fears grew of a possible Greek sovereign debt default. We purchased a new position in Rexel and sold our holding in Thales. The overall shape of the portfolio remains broadly unchanged with a strong bias to firms based in northern Europe, which has better growth prospects than the south, and more than 50% devoted to cyclical and financial shares.

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WEAK EURO BOOSTS EUROPEAN PROFITS

Our mandates outperformed in May. Against the background of euro weakness, investments with a large exposure to the US economy, such as Zodiac, BiC and Legrand, acted especially well. On the negative side, our financial investments performed poorly owing to fears of a possible Greek sovereign debt default. We cut our investment in PGS. The shape of the holdings remains broadly unchanged, with around three-quarters comprising cyclical and financial shares. Exposure to energy producers is limited, as it is to businesses with relatively secure earnings but where scope for demand-led growth is minimal.

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CORPORATE PROFITS CONTINUE TO RISE

Our mandates outperformed in April. Many key positions performed well, such as Assa Abloy, which rallied after strong first-quarter results. Performance was more mixed among the smaller positions and some financial investments performed poorly. We purchased new positions in Amadeus and Victrex, sold Fielmann following a period of strong outperformance, and sold ALK-Abello, Arkema and Deutsche Telekom with better opportunities appearing elsewhere. The overall shape of the portfolio remains broadly unchanged, with three-quarters devoted to cyclical and financial businesses including Air France, Allianz, Credit Agricole, KBC, Michelin, Swiss Re and UBS.

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RESTRUCTURING STORIES ARE KEY TO GROWTH

Our mandates outperformed in March with key positions performing well. Notably, Credit Agricole and UBS rallied strongly. Performance was mixed among the smaller positions-Air France, Arkema, ASML and KBC performed well but Eurotunnel, Thales and Fielmann fell behind slightly. We added new positions in Thales, Safilo, Joyou and Fiat, and increased the BiC holding. We sold Autoliv following a period of strong performance, and Sanofi and ALK-Abello after seeing better opportunities elsewhere. Following these transactions, the overall shape of the portfolio remains broadly unchanged with around three-quarters devoted to cyclical and financial share.

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LOW PRODUCTION COSTS HELP PROFITABILITY

Our mandates outperformed in February. Within the key holdings, Assa Abloy, Swiss Re and UBS all performed strongly. Among the smaller positions, Fielmann, Legrand and Software AG performed well with their businesses developing much better than the market expected. We sold the position in STM following a period of strong performance, added to the holding in Deutsche Telekom by selling France Telecom and made a new investment in BiC. Around three-quarters of the long book comprises cyclical and financial shares. We have limited exposure to energy producers and businesses with reduced scope for demand-led growth, such as pharmaceuticals.

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OVERWEIGHT CYCLICALS AND FINANCIALS

Our mandates outperformed in January. Growth oriented stocks, such as Autoliv and Legrand, performed well, which was onset somewhat by weakness in financial investments. We sold positions in Renault and Daimler following strong outperformance and sold the holding in Credit Suisse. We made new investments in Michelin, SGS and Bull. ?e overall shape of the portfolio remains broadly unchanged with nearly three-quarters of the long book devoted to cyclical and financial shares. We have limited exposure to energy producers and to businesses with earnings that may be relatively secure but less scope for demand-led growth, such as pharmaceutical companies.

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ECONOMIC RECOVERY IS SET TO BROADEN

The funds underperformed slightly in December. Most larger positions performed well, which was offset by some financials performing poorly owing to fears that the banking industry may have to raise more capital.