In a relatively quiet month for news, Evenlode Income returned -0.7% compared to a return of -0.5% for the IA UK All Companies sector and +0.7% for the FTSE All-Share. The fund’s underperformance relative to the FTSE All-Share was primarily due to a strong month for oil and mining producers, to which the fund has no exposure.

In terms of holdings, the most positive contributors were JLT Group, Reckitt and Compass Group. JLT rose +31% after receiving a recommended takeover approach from Marsh & McLennan. JLT has an excellent global franchise and has been investing heavily in organic growth, both factors that its US peer clearly acknowledges. Reckitt and Compass rose on no specific news.

The most negative contributors were Unilever, Relx and Smiths Group. Unilever released no fundamental news, though investors remain focused on the company’s October vote to determine whether it will ‘go Dutch’ or not. From the perspective of Evenlode Income investors we would prefer the company to remain as a UK-listed business, though we would expect to retain the holding as part of the fund’s overseas-listed exposure if the vote leads to a reclassification. Relx fell back on open-access journal concerns, whilst Smiths Group released final results.

In terms of portfolio changes, we trimmed the fund’s position in JLT following the takeover approach, and added to several holdings including Relx and Smiths Group. We also added a small position in Savills after recent underperformance. Savills operates in cyclical end markets but enjoys global diversification, a strong market position, an asset light business model and no debt. Finally, we reduced Page Group and used the proceeds to add Hays, its global recruitment peer. Hays, like Page, offers good long-term structural growth, healthy cash generation and a very strong balance sheet. However, it currently appears more attractive to us on a valuation basis.

Hugh Yarrow 30 Sep 2018
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