Manager's Monthly Report

The Trust produced a Net Asset Value total return of +4.8% during the month and a price total return of +1.6%, compared to a return of +4.9% for the FTSE All-Share Index (TR.

Amid the uncertainties created by COVID-19, two themes stand out to us. Firstly, the digitalisation trend is broadening and accelerating. Companies that can embrace the digital shift and still earn attractive economics are likely to see their competitive positions enhanced by current conditions. Meanwhile, those companies whose products and services actually enable this shift are likely to become even more valuable assets.

Considering this trend in the context of the Trust’s holdings, we note from recent results that AJ Bell and IntegraFin welcomed record customer numbers to their online savings platforms as finance continues the march to online. Digitisation is an unmistakeable force that is impacting all sectors of your Trust’s portfolio, whether that be retail, healthcare, or property. History would strongly suggest society does not return to previous analogue habits, and we invest accordingly.

The second theme relates to UK dividends. So far this year, 40 FTSE 100 companies have taken action to reduce their dividend in some form. In certain cases, dividends will be reinstated at prior levels, but for many of these companies, and thus the market as a whole, the days of making unaffordable dividend payments are over. Whilst this is painful to income accounts in the short term, we believe that dividends should be conservatively paid out of growing cash flow after prudent reinvestment for growth and full servicing of financial obligations. With that in mind, we expect a substantially lower level of market dividend payments to emerge from this period of dislocation. We also maintain a realistic hope that tempered dividend pay-out ratios should lead to improved future free cash flow and income growth.

So far this year, your Trust has been better insulated from the capital and income erosion endured by the UK market, and we continue to use short-term volatility to upgrade the portfolio’s aggregate return on capital and free cash flow growth profile. Such moves will have a dampening effect on this year’s revenue account versus recent history, but we believe they place the Trust in a better position to deliver a balance between income and capital growth into the future.

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