Q:  Do you benchmark yourself against any index?

A: The index we use as a benchmark is the ftse All share Index, which isn’t a perfect match because it hasn’t got any income bias to it, whereas we have, but it gives you an idea of how you are doing at any given point in time. There are around 700 stocks in the ftse All share Index.

The AIm market is a market of smaller companies in london and hasn’t got the same status as a full listing. Currently there are over 1,100 stocks on the AIm market. We would not have the ability to monitor all those stocks in the AIm market. Something has to either catch our eye or has to be pointed out to us to make an investment in the main stock. Normally, out of the holdings on the portfolio, you wouldn’t find more than one, two or three holdings from the AIm market and most of them would probably be from the ftse All share Index.

Q:  There are roughly 700 stocks in the FTSE All Share Index, but how many stocks are actually quoted in London?

A: There are 700 stocks in the All share Index and 1,100 odd in the AIm index. Then there are also many companies that have got international listings in london nowadays, quite a lot from china and from the former soviet union states, which we don’t regard as being part of our index and we wouldn’t follow. The overall number of companies that lists in london would be therefore a lot larger than just the sum of those two numbers.

Q:  What kind of risks do you monitor and what do you do to mitigate them?

A: there are risks on several levels. One would be that as we are a long only fund and when the market falls for whatever reason, we wouldn’t have the ability to short the market, so we would be exposed. What we can do is to raise cash levels, but, again, being a unit trust, there is a limit to how much cash we can hold.

We can switch into more defensive investments, like utilities for example, but a falling market is a risk for us. The other unit trusts in the sector face exactly the same problem, because they too will be long only too.

The other risk, which is a lesser risk, is that we have the wrong economic or market analysis and have got our investments positioned in the wrong sectors or companies for a given set of events. That is a far smaller scale problem because as long as the investments that we are holding are good ones, they will manage to rebound. So, that’s a medium risk.

There is also the risk that you have an investment, which despite all your analysis, actually underperforms. But with 60 to 70 stocks in the fund, a lot of the stocks are only going to be about 1% of the portfolio. Those, which are larger, are typically the very large-cap stocks like hsbc, british petroleum and glaxosmithkline, companies which you might expect to have stock price volatility, but are actually unlikely to go out of business. So, we would regard stock-specific risk very low in the large and mega cap sector of investing.

There isn’t really much currency risk in the portfolio. The risk in the companies that we invest in are earning money in international currencies and therefore you will have a transaction or a translation risk as they move that money back into sterling for accounting reporting purposes.

At the moment the three main currencies for us are sterling, euro and the us dollar. Compared to other fairly recent times in economic history, those three currencies are probably less volatile then they use to be. Now people get fairly excited about a 10% move in the us dollar and yet there was a time when the sterling had the propensity to move between almost $1 and $2 in a fairly short order of time.

Q:  Can you give an example of an investment that really worked out for you?

A: A company we have recently made an investment in is resolution group. They are buying up books of closed life business and by stream-lining the administration and investment processes of the company have managed to improve the profitability from those life books. They have recently bought a book of life business from Abbey national, which is now owned by a spanish bank, banco santander. In this particular case, attractive profit projections from the stock brokers for the coming years and our view that the company can support the growth through acquisition has firmed our positive view on the company. In fact, the company feels that there are more deals that can be done in the sector. As a sign of confidence, the chief executive recently borrowed 45 million sterling to buy more shares in the company.

That’s another example of a company where we did a mixture of our own work along with information from brokers. We met the management and walked away with the impression that the business can grow substantially in the coming years. I believe that the stock will be in the portfolio for a considerable period of time.

Q:  What is the turnover of the fund?

A: It’s quite low. In the first half of this year the turnover was about 60% and it was just over 100% for last twelve months.