Fund Approach

It is an unconstrained special situations fund of approximately 40 – 50 investments. Larger than average positions are often taken, however always being aware of good portfolio management. Typically investments are made on an absolute basis, aiming to make money for shareholders with relative outperformance of the benchmark of secondary importance. We invest in our highest conviction ideas irrespective of sector and size and employ leverage or hedging with the aim of improving the risk / reward characteristics.

The Fund has the ability to borrow money to enhance returns. This gearing can enhance benefits to shareholders but, if the market falls, losses may be greater. Borrowing is normally on a short term basis to ensure maximum flexibility. The Fund also invests in synthetic equities ("CFD's") (long positions) and similar instruments as an alternative to holding actual stocks.

The Fund may also make use of hedging as an additional investment tool and to help reduce the potential for stockmarket weakness to adversely impact the portfolio. It aids flexibility and can allow exposure to a sector to be reduced with less disruption to the underlying long term portfolio.

Acquisitions

Potential acquisitions are identified using a range of sources from company meetings, broker and related contacts. Principally, positions are acquired through primary fundraisings rather than simply acquiring in the secondary market. The preference is to avoid new issues rather to concentrate on follow-on capital raises. Our aim is to participate in companies that are on the cusp of profitability that require modest funds to allow them to attain this level. Alternatively, in companies that have identified complementary business to bolt on to their existing model.

Disposals

An investment is generally made with an exit plan in mind. The sale process is as or if not more important than the original buy decision. The sale trigger is unique for each investment and typically a combination of rating, absolute share price, investment maturity and opportunity cost of holding the investment. In our view, it is never wrong to book an absolute profit.

Risk management

Although the Fund's benchmark is the IA UK All Companies Sector Average Index, the pursuit of the investment objective may involve exposure to companies on other exchanges and to unlisted investments. A high conviction investment approach is employed, which can involve strong sector or thematic positions.

No individual investment will exceed 10% of the portfolio on acquisition. Total exposure to unlisted shares is also limited to a maximum of 25% of the portfolio and has historically been less. The level of gearing, including the use of derivatives, is closely monitored and the Board has set an upper limit of 30% of net assets. Hedging up to a maximum of 15% has been approved by the Board and is conducted through CFD's or other index instruments.

Performance

The Fund typically under-performs strong positive markets and out-performs in flat and adverse ones. This is principally due to the mix of investments and the hedging operated by the managers.