Manager's Monthly Report

The Trust produced a Net Asset Value total return of +4.7% during the month and a price total return of +3.2%, compared to a return of +6.4% for the FTSE All-Share Index (TR). A number of factors contributed to the rally, which broke a three-month run of negative returns for UK Equities. Sterling weakened after a strong run, partly due to weak Q1 GDP numbers which reduced market expectations of higher interest rates. The oil price continued to rise on the back of rising global demand and constrained supply. M&A activity also continued to pick up. A surprise decision was taken by Walmart to merge ASDA into J Sainsbury, thus abandoning its twenty-year attempt to conquer the UK food retail market. Whitbread announced a demerger and First Group, the train operator, received a private equity approach.

Within the portfolio there were robust returns from the oil majors who continue to display capital discipline, thus increasing investor confidence that rising cash flows would find their way back to shareholders rather than marginal exploration projects.

Other companies that produced notable positive returns were Next and Domino’s Pizza. Both are UK consumer stocks that can buck the economic trend due to the strength of their individual franchises.

Some individual holdings were reduced after significant share price rises. These included Royal Mail, which continues to thrive following the resolution of the dispute with unions over the company pension fund, as well as Severn Trent and SSE. The aggregate exposure to utilities continues to be reduced.

Valuations are looking more attractive at present and the yield on the underlying portfolio is now above 4%.


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