Q:  What is your investment philosophy?

A: We are looking to benefit from for both income and capital growth in the uk large-cap sector. We are stock investors, so we look to invest in companies that are likely to sustain earnings growth but we do overlay that with the macro economic analysis of what is going on in the economy and what we think is happening to interest rates, taxation and other macro economic developments. Many uk large cap companies are operating globally, so it helps to have an understanding of the world view.

Q:  Who are the people directly involved in the fund?

A: Tim gregory, our chief Investment officer, and I are co-managing the fund. We have known each other and worked together for quite a long time. James knowles understands asset allocation and he contributes a lot of the top-down economic analysis to develop fund strategy. Matt sharp is the third person who is involved in daily investment issues and handles technical issues related to investments. As a whole, psigma has approximately 30 staff members.

Q:  What is the origin of the fund?

A: Psigma Investment management is part of the punter southall group companies. The punter southall group provides a wide-range of investment solutions covering independent financial advice, asset management, product solutions and independent research, employee benefits, pensions consultancy and actuarial services. Psigma Investment management was set up in january 2003 as a company with no assets under management. At present we have a total of almost 500 million sterling under management. Unit trust was launched in october 2003 and currently the unit trust has 15 million sterling.

Q:  How do you put your core beliefs into practice?

A: We are looking for both income growth and capital growth. To be in the uk equity income sector we need to provide a yield of at least 10 percent above the ftse All share index yield. We aim to grow the income every year so there is a steady record of income growth; not necessarily the highest starting yield, but one that can be grown over the course of time.

Q:  Do you look at companies outside the index?

A: We invest in uk listed companies. We would look at anything within the ftse All share index or the AIm listed market as well as the few uk convertible securities. Collectively, we can look at more than 1,800 companies.

Q:  What are the things you look at before you decide to add a company to your portfolio?

A: We are looking for strong management teams. Whenever possible, we meet the management of the companies we are invested in. We also focus on the operating cash flow of a company and the related financial measures. Hard cash is one of the most difficult things for companies to manipulate in the financial statement. If you pay attention to the nature and level of cash flow, it gives you a good steer on the business and quality of its operations. If a company is generating cash, it makes it a lot easier for them to raise dividend in the future and help drive share prices.

We also pay attention to the strength of the balance sheet. When companies have excessive leverage on the balance sheet, companies are managed from the debt holder’s perspective and have little room to pay or raise the dividends. Also company has very little margin of safety if business conditions deteriorate.

We invest in companies that are leaders in their own industries. If the company has not got a significant competitive advantage it will be competed away in terms of price. Once it becomes a commodity provider, it becomes very difficult to succeed in the long run. So, we are looking for companies that do have bargaining power and strong product portfolio.

Q:  How do you go about portfolio construction?

A: We rely a lot on our contacts in the broking community to initiate the search for an idea. Large cap companies are well researched by the brokerage community and it helps us to use their information to start our research process.

The portfolio has between 60 and 70 holdings. There have been times when we have been worried about a lack of direction in the market and we have had more than 70 names. At the moment we have 64 holdings in the fund.

We don’t set specific price targets for our holdings, but we do monitor them closely and we are looking for any change that may make the momentum of that company slow down. As long as the company is doing well in meeting our financial and business expectations, we would keep the company in the fund.

Q:  What is your sell discipline?

A: We have a strong sell discipline and do not just let unsuccessful investments lie around on the portfolio. Once the company has started to disappoint investors, it takes a lot longer than the market often expects for that company to return to the normal profit level. Quite often the first profit warning that you get is not the whole truth. Then you often get a second or a third more significant profit warning that will lead to management change. The whole process can become quite drawn out and can actually destroy more shareholder value in the process so we have strong sell discipline for stocks that disappoint and we do sell stocks of the companies from the portfolio as soon as possible.