BAA (BAA), the world's largest airport company, caught our attention because the company was trading on an undemanding earnings multiple, had reasonable growth prospects and offered a robust dividend yield. We were impressed by the resilience of BAA's earnings despite a downturn in air traffic volume bought about by terrorism concerns and the SARS virus. A recovery in passenger numbers improved sentiment towards the company, and the group's long term earnings outlook was boosted by steady progress on the Heathrow Terminal 5 project. However, the subsequent Madrid bombing, and the prospects of further terrorist attacks, shook our confidence in the durability of the recovery in passenger volumes. We exited the stock at a profit and moved on to the next opportunity.

We are great believers in the power of brand value, and Diageo (DGE), the world's largest premium spirits company, had assembled a portfolio second to none in the industry. Following two major disposals (Pillsbury and Burger King) the company refocused on optimising returns from core brands. We also expected earnings to receive a boost following the rationalisation of US operations. Although the market was beginning to recognise the strides made to integrate the Seagram business in the US, we became concerned by the increasing impact that a weakening US dollar would have on earnings. Adverse currency moments shaved £20 million off 2003 operating profit and management were forecasting an exchange rate loss approaching £100 million in 2004. We expected this figure to widen further given our bearish view on the greenback. We were also anxious about the ongoing delay in the sale of the company's 21 percent stake in cereal maker General Mills. Given our growing concerns, we took the opportunity to book a profit.

Bearing all the hallmarks of a "classic signature dish" (low price earnings multiple and a solid dividend yield), Thorntons (THT), the specialist chocolate manufacturer was one of the first entrants into the Fat Prophets Portfolio. Market sentiment towards Thorntons had been extremely pessimistic, but it was our belief that the market was ignoring the prospects for earnings growth through non-traditional distribution channels. Following the collapse of takeover negotiations in February, the retailer staged a strong recovery driven by a change in leadership, closure of unprofitable stores, and optimism regarding newly negotiated supermarket distribution agreements. With the shares encountering solid overhead resistance and the valuation becoming somewhat stretched, we recommended Members sell half their holdings in May and completed our exit from the stock in June.

An unsympathetic market oversold WH Smith (SMWH) following a disappointing performance from the high street bookstores. However, we believed the underlying fundamentals of the business were sound. In addition, we were encouraged by new management's focus on core operations in Publishing, News Distribution and UK Retail following the exit from the US and Asia/Pacific. Undervalued on a sum of the parts basis in our opinion, we were not surprised by an informal bid approach from private equity firm Permira in April. After becoming concerned that the offer may falter as WH Smith was dragging its feet in allowing Permira to carry out due diligence, we recommended Members sell half their holdings in May. Subsequently the bid was withdrawn due to issues surrounding WH Smith's pension deficit.

With the economy set to emerge from a long period of stagnation, we identified Japan as a country likely to out-perform in 2003. The Invesco Japan Discovery Trust (IJD), a listed investment trusts, represented an excellent entry vehicle into the ongoing recovery in Japanese equities in our view. We took encouragement from the upward momentum being displayed in the broader Japanese stock market as robust demand from trading partners breathed a new lease of life into the economy. Fears of a 'hard landing' in China were overblown in our opinion. We were also confident that a consumer led recovery would eventually take hold. However following a substantial rise over the preceding twelve month period in IJD (and the Nikkei), we were of the view that a period of consolidation may ensue. We therefore took the opportunity to book a 53 percent gain, advising Members to sell half their holdings.