Manager's Monthly Report

March saw the equity market downturn of the previous month accelerate into bear market territory, with a total return of -15.1% for the FTSE All-Share Index. Your Trust demonstrated more resilience than the market but the Net Asset Value total return of -10.4% and price total return of -7.3% for the month shows that the severity of the fall could only be partially resisted.

Many business models are being tested to their limits and the need for balance sheet strength and liquidity has rarely been at more of a premium. The extensive emergency support announced by the Chancellor is aimed at reducing a sharp rise in unemployment as many companies experience a period of effectively zero revenues. These measures are having a positive impact, although the long-term cost to the taxpayer is enormous, and their efficacy will depend on the ultimate length of the business shutdown.

With businesses prioritising the preservation of cash, the outlook for the market dividend is now more uncertain than at any time since 2008. The number of deferred or cancelled dividends, including those already declared, is extensive and climbs every day. We expect more companies will take this route and in particular those that have received government support. Although we believe the current situation will prove temporary, we cannot predict the shape of the recovery in dividends or business performance.

While market falls have had a degree of discrimination, good and great businesses have still fallen along with mediocre and poor ones. For some companies, current events may permanently impair their business model and dividend paying ability, but for others this will be a passing setback from which the strong will emerge stronger. Therefore, we are pressing on with our previously communicated strategy of driving up the quality and resilience of the portfolio. We believe that the changes we have made, and continue to make, will enhance the longer term dividend growth potential of the Trust as the economy moves into a recovery phase following this extreme shock.

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