Manager's Monthly Report

The Trust produced a Net Asset Value total return of -1.4% during the month and a price total return of -1.8%, compared to a return of -3.6% for the FTSE All-Share Index (TR).

Over the last month the financial press has become increasingly preoccupied with the ‘inversion of the yield curve’. In normal circumstances investors rationally expect to receive a higher rate of interest in return for lending money for a longer period of time. At the moment however, investors lending to both the UK and US governments for ten years receive a lower annualised return than those lending for 3 months. This is the result of an expectation that interest rate cuts will be the inevitable central bank response to slowing economic growth. Inverted yield curves have often presaged recession and as such equity markets have been volatile over the last month.

More cyclical sectors such as oil & gas and financials were hardest hit by this volatility. Banks are forecast to see reduced net interest margins and demand for energy usually moderates in times of weaker economic growth.

The Trust has protected you well against this volatility. The underlying portfolio has limited bank exposure and has eschewed stocks such as the life insurance companies. Although we have conviction in the improving cash flows from the Trust’s investments in BP and Royal Dutch Shell, the holdings here are limited in size by our recognition of their cyclicality.

Conversely, the investments in defensive consumer companies such as Nestlé and Unilever have performed notably well. Investments in income-producing property and infrastructure companies also delivered robust positive returns in most cases, with Assura, an investor in GP surgeries, the best-performing holding in the portfolio. Although we would much rather report that your investments had experienced a positive absolute return, it is the preservation of capital in weaker markets that enables the portfolio to steadily compound over the long term.


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