Fund commentary

The Fund was behind the FTSE All Share Index but outperformed the Morningstar (IMA) UK Equity Income Sector return, placing the Fund in the second quartile of its Peer Group. Over the calendar year 2011 it was also second quartile, ahead of the FTSE All Share and peer group. Over the quarter the Fund benefited from its underweight to financials, overweight to tobacco and the 9% exposure to overseas equities which performed strongly. However, contrary to the rest of 2011 the underweight in strongly performing oil & gas and overweight the underperforming utilities held back performance.

All four of our sub-managers outperformed the peer group over the quarter but only one outperformed the FTSE All Share index namely Neptune. However, over the calendar year three out of four sub-managers produced first quartile returns namely PSigma, Neptune and Threadneedle and outperformed the FTSE All Share comfortably.

Threadneedle was slightly behind over the fourth quarter, but this was not a bad outcome given the manager's large overweight (23% v 12.5%) to the FTSE Mid 250 Index which only rose 3.5%. Sector allocation drove the slight underperformance: underweight financials contributed positively whilst underweight energy and overweight utilities contributed negatively. Stock selection in consumer discretionary and energy contributed to performance but detracted from performance in financials.

Neptune had a good quarter driven by its stock selection with 18 of its 40 holdings up over 10% and these returns were broadly spread across a number of sectors both cyclical and defensive. Tobacco was the best defensive sector rising 15% and is 12% of the Neptune mandate. Oil & gas was also up over 15% and is a 10.5% weighting.

PSigma was only slightly behind over the quarter. Asset allocation was the main driver to performance helped by an unusually high exposure to oil & gas (compared to other income managers) which is in-line the sector at 18% and saw a 17% return. The large overweight in pharmaceuticals, overweight in tobacco and large underweight in banks were also positives. However, areas that detracted from relative performance were a result of stock selection in telecoms, utilities, support services and aerospace & defensive sectors.

BlackRock was behind the sector despite its barbell approach as positioning has remained more defensive over the quarter as they felt the inertia of any positive actions regarding the European debt crisis would have knock on effects to global growth and therefore stock markets. The main detractors versus the FTSE All Share were the overweights to utilities and financials.

31 December 2011

Important Information for retail clients

AcceptDecline

Important Information for retail clients

Please read this page before proceeding, as it explains certain restrictions imposed by law on the distribution of this information and the countries in which our funds are authorised for sale. It is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction.

This does not constitute an offer or solicitation to sell shares in any of the funds referred to on this site, by anyone in any jurisdiction in which such offer, solicitation or distribution would be unlawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation.

Applications to invest in any fund referred to on this site, must only be made on the basis of the offer document relating to the specific investment (e.g. prospectus, simplified prospectus or other applicable terms and conditions).

To invest in SWIP funds please contact your financial adviser. If you do not have a financial adviser please contact the IFA promotions line on 0800 085 3250, or online at www.unbiased.co.uk. where information on finding one can be obtained.

As a result of money laundering regulations, additional documentation for identification purposes may be required when you make your investment. Details are contained in the relevant Prospectus or other constitutional document.

If you are unsure about the meaning of any information provided please consult your financial or other professional adviser.

You may leave the Scottish Widows Investment Partnership Limited (SWIP) website when you access certain links on this website. In so doing, you may be proceeding to the site of an organisation that is not regulated under the UK Financial Services and Markets Act 2000. SWIP has not examined any of these websites and does not assume any responsibility for the contents of such websites nor the services, products or items offered through such websites.

SWIP shall have no liability for any data transmission errors such as data loss or damage or alteration of any kind, including, but not limited to, any direct, indirect or consequential damage, arising out of the use of the services provided herein.

On accessing the SWIP website, you are aware of the following investment risks applicable to all SWIP funds:

- Past performance is no guarantee of future performance.

- The value of investments and the income from them may go down as well as up and are not guaranteed.

- You may not get back the amount you invested.

- Taxation rules and legislation may change without notice.

- Rates of exchange may cause the value of investments to go up or down.

- Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may
fall suddenly and substantially.

- For your protection, telephone calls are usually recorded.

This site is operated and issued by Scottish Widows Investment Partnership Limited (SWIP), Company No. 794936. Registered Office in the United Kingdom at 33 Old Broad Street, London EC2N 1HZ. Tel: 0131 655 8500. Scottish Widows Investment Partnership Limited is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 www.fsa.gov.uk.

For more information on how to invest in our funds either: