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Abbey issues investment outlook

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The Santander UK Growth Fund maintains a cautious stance on the investment market overall.

Richard Moore, manager of the fund which was formerly known as the Abbey UK Growth Fund, said: “In 2008, we expect growth to slow, but there will be interest rate cuts. These won’t have a noticeable effect on the economy until 2009 however.

“We remain overweight in food retailers as we continue to be mindful of food-price inflation. Higher food prices are not just a cyclical phenomenon and will be ongoing. Over the longer term, inflation in the food price will benefit supermarkets as well as food processing companies. The fund has benefited from its exposure to Scottish & Newcastle, which rose following the takeover bid for the company by Carlsberg and Heineken. Exposure to Unilever has also proved beneficial, where the shares have performed well on absolute and relative terms.”

Abbey remains positive about the telecoms sector and is especially keen on Vodafone. The company has strong opportunity to increase its sales growth due to its exposure to the Eastern European markets and as the overall usage of mobile data increases.

Moore adds: “We also remain keen on the oil sector. A major success for the fund in this sector has been Tullow Oil, which has had recent drilling breakthroughs in the UK Southern North Sea, Uganda and Gabon. We have been positioned overweight in Rio Tinto and underweight Billiton, who have made a takeover bid for the former and this has supported performance.

“Despite a slowdown in the US economy we are maintaining our overweight exposure to mining stocks but are beginning to take profits from recent rallies.

“We were previously keen on British Energy as a stock as it was expected to benefit from higher electricity prices but with stable production costs. This has however not been as beneficial as we had expected due to some difficult production problems.

“While not yet buying into the sector, UK property stocks are now trading on big discounts to their net asset values and I am looking at the area closely.”

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