Copy of the Fund Manager's Comments from The Interim Report 30 June 2011

Following a strong rally into the end of 2010, the stock market remained mostly range bound during the first half of 2011 against a backdrop of geopolitical concerns, the natural disaster in Japan, social uprisings in the Middle East and North Africa, sovereign debt crisis in Europe, higher oil prices and rising inflationary pressures. The US Federal Reserve's second round of quantitative easing (QE2) continued to have a stimulating impact on certain areas of the economy. However, concerns remained about the high government and personal debt, large fiscal deficits and weak labour markets.

After a gratifying performance for the five years to 31 December 2010, the first half of 2011 was a disappointing period of performance for the Fund due to certain stock-specific events. Investing is a process of making decisions based on incomplete information when the risk reward appears to be in one's favour. There will be occasions when the original reasoning is no longer valid, and I will sell the stock. However, there will be other occasions when the investment takes longer than expected to deliver and if the original reasoning is still valid then I would add to the position even if it negatively impacts short term performance. Against an uncertain macroeconomic environment we continued to maintain an overall defensive bias by generally avoiding certain sectors of the market such as retail, financials and real estate, and using index futures to lessen the impact of downward move in the market. Although the Fund may underperform over short periods, we remain confident that in such an uncertain situation, our balanced approach provides some protection on the downside with the best opportunity for a better relative performance over the longer term.

Performance

For the six months to 30 June 2011, the value of the Fund decreased by 17.3%* compared with a gain of 1.4%* for the average fund in the UK All Companies sector. The FTSE All Share index gained 1.1%* during the same period.

Portfolio

At 30 June 2011, the portfolio consisted of 34 companies. Software & Computer Services made up 21.0% of the portfolio followed by Utilities 14.2% and Technology & Hardware Equipment 11.4%. The Fund's overseas exposure was 17.0% of the portfolio. The cash position at the period end was 3.2%.

Outlook

 

The general outlook for the economy has deteriorated rapidly since the period end. To fund the current UK, US and European deficits, these countries will have to borrow on an unprecedented scale. Whilst the likelihood of an interest rate rise has been delayed for an extended period, unexpected extreme market threats seem to be occurring with greater frequency. A generally weakening economy, high US unemployment and a fragile housing market, the recent escalation of debt crisis in Europe and the S&P downgrading of the US debt for the first time in history as a result of a last minute deal to raise the debt ceiling in the US without offering sufficient spending cuts, have triggered panic selling in global stock markets in recent days.

We are closely monitoring the situation and remain ultra cautious about the near term outlook. Stock markets are expected to remain very volatile as they navigate several critical challenges over the next few months. We will continue to maintain an overall defensive bias whilst focusing on stocks we consider have company-specific drivers and can succeed regardless of the macroeconomic environment.

I thank you for your investment in the Manek Growth Fund and your continued support.