Over the last few months we raised our cash position to above 20% on the back of increasing concerns over the macro situation. We also moved into more defensive positions offering substantial and sustainable dividends.

As a result, during the current turmoil we have protected our investors when compared with all major markets.

From 29th July to 10th August 2011, current performance figures are:

Dow Jones: -11.72%

S&P 500: -13.27%

FTSE 100: -13.89%

German DAX: -21.59%

French CAC: -18.24%

Japanese Nikkei: -8.08%

In comparison, the Fund is down 7.48% month to date.

Whilst we remain cautious, we have started to build positions in some of the highest yielding blue chips on the dips. We are looking to lock in sustainable dividends of 6% or more in industries where demand is unlikely to be affected. This will cushion our investors from the worst of potential volatility in the short term whilst providing attractive income and capital upside over the longer term.

Our defensive position does mean that if markets begin a sustained rally then we will grow less strongly. However, we prefer to remain defensive at the current time and buy only when presented with bargains.

We remain very cautious.

Having moved entirely into cash in the summer of 2008, we were slow to invest during 2009. We did not believe that the fundamental problems that had become apparent during the credit crunch had been solved.

The major silver linings were that companies were making very good profits and that central banks were prepared to put huge amounts of liquidity into the markets. Now the issues that underlay the credit crunch are resurfacing, albeit in disguise. The sheer scale of the support provided by many western governments has meant that they are now far more susceptible to a potentially more insidious form of the crisis they have fought so hard to avoid.

In Europe, the dysfunction of the Eurozone resembles that of the gold standard after the First World War, where disparate economies were locked into a fixed exchange rate. The Eurozone is unsustainable in its present form. Either Europe must move in a more federalist direction (a move for which there is a huge lack of public support), or it must undertake massive transfers of wealth from north to south (a move for which there is a huge lack of public support - except in the south!), or it must jettison weaker members, or it must implode. The most likely outcome is a combination of the first two factors. Of course, this will not be communicated clearly to the electorate. As a result, we remain very concerned about a possible collapse in the value of EUR. We therefore prefer companies based in countries such as Germany. If EUR does dissolve (or if weaker members are jettisoned) the currency impact is less worrisome and could be very strongly positive over the longer term.

In the UK, bold moves by the coalition government seemed to put the UK well in front of the bond markets. But now, the coalition seems to climb down whenever there is serious opposition. This does not bode well, given that the real pain of austerity is yet to be felt. If bond markets start to doubt the commitment of the UK government and interest rates are forced up, the consequences on Britain's still overvalued housing market, its banks and then the wider economy as a whole could be grim indeed. We therefore prefer high-yielding blue chips with little debt in areas such as food and energy - areas for which demand should not be badly hit.

Indeed, it is in many ways that US that has the least serious (or perhaps the most easily solvable) set of problems. But dreadful politicians, poisoned on the one hand by the need to appease the Tea Party (and therefore avoid a primary challenge), or on the other the need to appease the likes of the teachers' unions (and therefore avoid a primary challenge) make political compromise difficult to achieve. Our exposure to the US is still very low at just over 10%. But we will be happy to buy the bluest of blue chips if valuations and dividends fall into our range.

We do not believe that the same level of systemic risk exists at this time as existed in the summer of 2008. But we will be prepared to move more heavily into cash (current cash holding 20.67%) if we deem this to be necessary. (We are able to move 100% into cash if we believe it is in the interests of our investors.). 

Over the longer term, buying quality stocks at undervalued prices will generate attractive returns. One thing is certain. If confidence really collapses and stocks are available at bargain prices, we will be buying! 

Performance Figures Prior to the Launch of the Fund

Prior to 1st December 2008 (the launch date for the Elite LWM East-West Value Fund), the performance figures quoted for the underlying strategy are the gross returns of our entire equity portfolio over the period beginning October 27th 2005. From 27th October 2008 to January 5th 2009 we were 100% in GBP cash for the transfer of clients' assets into the Fund. We measure only the performance of the money that was invested on behalf of our clients. We factor in any cash received in the form of dividends from stocks purchased and any realised cash that was held resultant of the sale of a stock. We do not however factor in sums received for investment that did not enter the investment cycle.