The Sceptre UK Fund was down by 0.9% in January which compares to a fall of 0.3% for the FT All Share index. For the rolling 12 month period the Sceptre UK Fund is now up by 20.6% whilst the index has risen by 9.7%, an outperformance by Sceptre of 11%. The rise in the fund was after all fees, including performance fees and was achieved with an approximate 12% cash weighting.

January was a quiet month on the trading front with only 6 trades taking place:

§         Two to top up existing positions on price weakness

§         Two new positions added

§         One position sold and one position part sold

We are particularly pleased to find two new holdings for the fund given the overall market strength during the 2nd half of 2006 and believe that we have found two very solid and profitable businesses which are both growing but are priced by the market for no growth at all. One is a technology stock with a strong balance sheet that has a 60%+ global market share in a proven and fast growing segment and the other is a construction stock that has undergone a significant rationalisation under a new and experienced management team (in place for 18 months) and is now well placed to capitalise following the sale/disposal of unprofitable/non-core businesses.

The position sold was with a net profit of over 40% in the two months we have held it and, whilst we believe there is still more potential upside, we have decided that it is prudent to take profits as the business is now facing more challenges (in the short term) and we consider there are better relative opportunities elsewhere.

Of the 16 stocks in the portfolio at month end, 8 are less than 5% above cost price – this represents about 43% of the fund by value and is a reflection of the potential value that we have been adding to the fund over the past few months. Whilst we have no view on the overall market direction, we believe that we have a portfolio of exceptionally strong, cash generative companies that we have bought at well below what we consider their “fair value” and these will continue to generate good cash flows over the medium to long term.

As always, please don’t hesitate to contact us if you have any questions about this update or any aspect of our investment approach.

Chris Broadhurst
CEO