The UK stock market continued its recovery in May, hitting new all time highs at points in the month. A combination of reasonable global economic data and broadly positive corporate results helped the mood.

Evenlode returned +3.6% compared to +2.8% for both the IA UK All Companies sector and the FTSE All-Share. The most positive contributors were Smiths Group, Burberry, Relx and Diageo. Smiths announced that it is in early stage discussions regarding a possible combination of its healthcare division with a US medical company (ICU). In our view Smiths management have put in place a sensible strategy to make the most of the company’s collection of high quality franchises. Continued evolution of the portfolio should highlight the embedded value within the group. Meanwhile, Burberry shares were helped by positive final results, strong free cash flow and a +6% dividend increase. Relx and Diageo rose on no specific news. The only negative contributors of note were Halfords and Ashmore. Halfords released final results in line with expectations. Analysts downgraded earnings somewhat for the coming year however, mainly due to a higher level of investment in training and technology. Ashmore fell on no specific news.

There were no major changes to the portfolio, though we continue to add selectively to holdings where we see a good combination of dividend yield and dividend growth potential. On this note, the fund went ‘ex’ a first quarter dividend of 1.61p* on 1st June, +4.5% year-on-year. Over the medium term, I continue to view moderate real dividend growth as a realistic aspiration for the asset-light businesses on which Evenlode is focused.

Hugh Yarrow 31 May 2018
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