We had a very solid month in February with our net fund performance being up 1.9% which compares with a 0.4% decline in the FT All Share Index. On a rolling 12 month basis the fund is up by 17.7% net of all fees, more than double the return of 8.2% for the index. The fund ends the month with 16 holdings (6 making up 50% of the fund) and a 10% cash weighting which, given the market’s recent sell-off, is being applied cautiously to add to some of our existing positions on weakness.

Whilst the market was down by 4.1% in the last 2 days of February, the fund was only down by 2.4% and reflects the more defensive characteristics of our portfolio which is soundly based on strong cashflow generation, solid business models and a view that the market has undervalued these businesses, in short, we think we have bought very good companies “cheaply” and they have a much smaller number of speculative ‘investors’ amongst their shareholders.

The technology sector continues to be volatile but this has thrown up opportunities in a number of extremely solid leading global technology companies over the past 12 months and we now have 3 excellent quality technology stocks that in total make up just over 20% of the portfolio. These are dominant players in their areas and are growing market share as their sectors grow but are currently priced by the market for little or no growth at all. Whilst their market leading positions, technology lead and multiple years of R&D give them substantial intangible assets which appear to be significantly undervalued by the market. As well as being very profitable, all 3 companies are highly cash generative and have the facilities in place to return excess cash to shareholders via stock buybacks.

Whilst we currently view many of the companies in the traditional “defensive” sectors such as utilities, tobacco, food retailers and pub operators as overvalued, there are some specific companies within the market that have not taken part in the market rally during the second half of 2006 and may soon fall into our buying zone – we remain hopeful and patient.

As always, if you have any questions on our approach or performance, please let us know.

Chris Broadhurst
CEO