Global equity markets and investor sentiment have continued to be volatile during the current quarter. Those searching for some logic to explain the shifts from despair to hope and back again are likely to be confounded. Banking crises and debt repayment schedules do not simply disappear overnight but markets are often unable to focus on more than one or two themes at any one time despite the abundance of news flow available. The current focus is on second quarter earnings from US companies and the problems of Greece, Portugal and so on have been sidelined, at least for the time being. So far, the reporting season has been a good one; 70% or so of S&P 500 companies have reported earnings either in line or better than analyst's expectations. Dividend growth is back on the agenda, balance sheets are looking a little more solid and for every day that passes, the threat of a double-dip recession, which occupied the market throughout the second quarter, is receding. When the market is in this sort of mood, it does not pay to expect further rises. Good news is greeted with euphoria and bad news breezily dismissed. All of this, of course, makes it doubly difficult to manage the equity portion of a balanced portfolio in the short term and makes it even more important to focus on longer term fundamentals, including dividend growth. Sometimes, under exceptional circumstances, even this sort of sensible strategic planning can go wrong. We have just passed through one of the most serious economic crises in modern history. Companies have been obliged to reduce payouts, major businesses have collapsed and so it is little wonder that equity markets remain jittery. The BP oil leak and the disgraceful political reaction are almost without precedent. Events of this magnitude drive investors to seek safety in the form of gold, the US Dollar and Government bonds. Whilst they may have been right in the short term, in the medium term we are increasingly confident that equity markets will regain their poise and investors will recognise some of the very attractive yields on offer at historically low multiples. With the fund paying a near 5% gross dividend yield, we think that this represents something of a bargain for those willing to look through the short term volatility.

Whilst the June quarter represented one of the poorest times on recent record for global equity markets (-12% in Dollar terms) July has all the makings of a vintage month. Those searching for some logic to explain the shift from despair to hope will, most likely, be confounded. Banking crises and debt repayment schedules do not simply disappear overnight but markets are often unable to focus on more than one or two themes at any one time despite the abundance of news flow available. Today, therefore, the focus is on second quarter earnings from US companies and the travails of Greece, Portugal and so on have been sidelined, at least for the time being. So far, the reporting season has been a good one; 70% or so of S&P 500 companies have reported earnings either in line or better than analyst's expectations. Dividend growth is back on the agenda, balance sheets are looking a little more solid and for every day that passes, the threat of a double-dip recession, which occupied the market throughout the second quarter, is receding. When the market is in this sort of mood, it does not pay to bet against further rises. Good news is greeted with euphoria and bad news breezily dismissed. All of this, of course, makes it doubly difficult to manage the equity portion of a balanced portfolio in the short term and makes it even more important to focus on longer term fundamentals, including dividend growth.

Sometimes, under exceptional circumstances, even this sort of sensible strategic planning can go wrong. We have just passed through one of the most serious economic crises in modern history. Companies have been obliged to reduce payouts, major businesses have collapsed and so it is little wonder that equity markets remain jittery. The BP oil leak and the disgraceful political reaction are almost without precedent. Events of this magnitude drive investors to seek safety in the form of gold, the US Dollar and Government bonds. Whilst they may have been right in the short term, in the medium term we are increasingly confident that equity markets will regain their poise and investors will recognise some of the very attractive yields on offer at historically low multiples. With the fund paying a near 5% gross dividend yield, we think that this represents something of a bargain for those willing to look through the short term volatility.

The International Growth Feeder Fund has in recent months been cutting back exposure to conventional bond markets in the face of rising inflation. Latest figures show that we were accurate to be concerned. Inflation has rebounded vigorously over the course of the last few months as energy prices and sales taxes have been moving higher. We expect this momentum to continue as the year progresses and for interest rates to begin rising gradually in the US by the 4th quarter of the year. This may not necessarily be unfavourable for equities; indeed some inflation should be broadly positive for the real assets invested into by the Fund namely international equities and property companies. In the meantime, our dividend streams remain robust.

After a strong period of recovery in late 2009, it would be reasonable to expect some consolidation within the fund in 2010. However, those businesses which have led the market higher in recent months have often been those companies which were hardest hit by the credit crisis and whose weakened balance sheets prevent them from paying dividends which are the lifeblood of the fund. As a result, whilst the Fund fell in value in 2008, the falls were muted compared with large sections of the market. Conversely, recovery was also a relatively modest affair set against the performance of certain sectors in 2009, notably financials and technology. This is to be expected in a fund of this nature where Marriott's income focused investing style seeks dependable growth and steady income streams rather than the cyclical boom and bust of riskier areas of the market. Marriott looks for businesses which can outperform through a variety of market cycles remaining focused on fundamental value, old fashioned cash flow and strong management teams, attributes which lead to medium and longer term performance in more difficult times as well as in periods of rising markets.