Manager's Monthly Report

The Trust produced a Net Asset Value total return of -1.6% during the month and a share price total return of -0.9%, compared to a return of -1.9% for the FTSE All-Share Index (TR). There were encouraging updates from both Next and IG Group in January, with Next using its prodigious cash flow generation to start a new share buyback programme. Next has been a superb example of how intelligent capital allocation can enhance shareholder returns in the long term. In fact, over one third of the company’s share capital has been bought back over the past decade.

The performance of equity markets and the Trust was held back by concerns over the impact of rising bond yields. Interest rates and bond yields have risen from low levels following firmer economic data, recently boosted by the Trump tax cuts. Market earnings growth has indeed accelerated over the past year in response. However, this growth is from a return on equity base which is high by historic standards. Cost pressures and higher interest rates, not to mention ongoing technological change, may act as a brake on strong market earnings growth. We focus on companies where healthy returns and growth can be sustained in the long run and we prefer shares where better economic conditions are helpful for the investment case, rather than being essential. Ultimately this is what drives the sustainable income and capital growth we seek to deliver in the Trust.

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