Manager's Monthly Report

The Trust produced a Net Asset Value total return of +2.0% during the month and a price total return of +2.0%, compared to a return of  +3.7% for the FTSE All-Share Index (TR).

As income investors, our eye has occasionally been caught by the UK motor insurance stocks. High yields and growing dividends make the sector superficially attractive but a closer inspection has always shown the business of insuring drivers to be highly competitive, with any leadership in pricing and profitability quickly undercut by volume-hungry rivals.

However, late 2017 saw the listing of Sabre Insurance, a niche provider of insurance to non-standard customers. The company’s unique underwriting data sets allow them to profitably insure risks that others deem too complex. This not only protects their relatively modest niche against other providers but also allows them to operate with profit margins that are around three times greater than the peer group average. Management’s focus on profitability over volume helps support healthy returns on equity and underpins the dividend.

The profitability of the core business also means Sabre is much less reliant on instalment revenues; an ‘interest charge’ associated with paying motor insurance premiums in twelve monthly instalments rather than a single upfront payment. We strongly believe these riskless instalment revenues are vulnerable to review by regulators looking to ensure those who cannot afford to pay up front are not subsidising those who can. By understanding and minimising such social risks (as well as environmental and governance risks) we aim to improve the risk return profile of the portfolios investments.

In recent weeks we have taken advantage of short-term weakness in the share price to buy Sabre’s shares on a trailing yield of more than 5%.


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