Manager's Monthly Report

The Trust produced a Net Asset Value total return of +4.5% during May and a price total return of +4.5%, compared to a return of +4.4% from the FTSE All-Share Index (TR). This positive performance was driven by double-digit price moves from a number of holdings, led by Vodafone (+16%), AstraZeneca (+13%), Burberry (+12%), Rathbone Brothers (+12%) and Reckitt Benckiser (+12%).

The eclectic nature of this list shows that there was no particular theme driving the market but what it did represent was the continuing rotation in favour of quality businesses. This continued the reversal of the violent swing into economically sensitive and cyclical stocks in the second half of 2016. The recent moves have vindicated the Trust’s long-term commitment to quality income growth stocks, rather than switching styles in order to chase short-term performance.

Dividend growth remained positive and the Trust received an additional boost from special dividends announced by Compass Group and New River Retail. We never rely on special dividends but the types of companies we favour, predominantly cash-generative and self-financing, inevitably have a higher propensity to generate surplus capital.

The equity market has brushed aside uncertainties relating to the General Election and Brexit negotiations but signs that the economy is slowing and delays to US tax reforms are likely to act as headwinds. Valuations are again fairly stretched and we do not expect earnings growth to effect a derating.

However, the growing income streams from many of the Trust’s investments continue to present attractions to investors in this era of ultra-low interest rates and we don’t expect this to change for some time. With cash balances being increased by funds arising from the Sky and Reynolds American transactions in the coming months, the Trust has plenty of scope to take advantage of appropriate opportunities.

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