Investor sentiment recovered in January, with global stock markets regaining much of the ground lost during the last few weeks of 2018. Though leading indicators continue to suggest a slowdown in the global economy, corporate earnings have on the whole been reasonable and expectations for US interest rates reduced significantly. Closer to home, both the pound and UK smaller companies enjoyed a strong bounce as investors considered the possibility of a ‘softer’ Brexit outcome.

Evenlode Income rose +3.1% compared to a rise of +4.2% for the FTSE All-Share and +5.4% for the IA UK All Companies sector. Several Evenlode holdings have updated the market and we have been reassured by their aggregate progress, particularly in respect of free cash generation and dividend growth. In terms of performance, the most positive contributors were Spectris, Howden Joinery and Diageo. Spectris and Howden rose on no specific news, whilst Diageo released positive interims results including organic sales growth of +7.5%, strong free cash flow generation and a dividend increase of +5%. The fund’s most negative contributors were Unilever and Astrazeneca. Though Unilever shares continued to underperform, the company released reassuring results at the end of the month, reporting steady sales and earnings growth, good strategic progress and a dividend increase of +8%. The company now trades on a dividend yield of 3.5% and in our view offers good potential for dividend growth over the long-term, thanks to its very strong brand portfolio, well-diversified global footprint and cultural commitment to investing and adapting over time.

There were no significant changes to the portfolio, though we added to several holdings including Hays, Schroders, Euromoney, Moneysupermarket, Reckitt and Unilever. Our focus remains on retaining a good blend of high quality, asset-light businesses in the portfolio that offer an attractive combination of dividend yield and long-term dividend growth potential.

Hugh Yarrow 31 Jan 2019
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