Manager's Monthly Report

The Trust produced a Net Asset Value total return of +0.9% during the month and a price total return of +1.0%, compared to a return of -0.2% for the FTSE All-Share Index (TR). As US interest rate expectations rose, and the outlook for Sino-American trade relations deteriorated, the market rally that had dominated much of the previous two months faltered. Reassuringly, the portfolio’s consumer staples stocks delivered a robust performance over this period. The more modest multiples on which these stocks now trade is a key factor in determining the resilience of their share prices.

It is also valuation that has driven us to exit the Trust’s holding in Burberry. We first bought the stock two years ago. At that time a depressed Chinese consumer and weak management structures had precipitated a share price fall that left this iconic brand trading on 16x earnings and a 3.5% yield. Since our purchase, the demographic forces that underpin Chinese consumer spending have re-asserted themselves and both a new chief executive and creative director have been appointed. These, and other developments, have driven the Burberry share price materially higher, leaving the stock now trading on a ten-year price/earnings multiple high of 27x and a yield of less than 2%.

The long-term future of the Burberry brand has likely altered only modestly during the last 24 months. However, we believe that the potential returns available to investors have diminished materially, prompting us to sell the Trust’s holding.


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