The UK market fell in May, with worries over US/China trade tariffs not helpful for sentiment. In the UK, political uncertainty continues with Brexit unresolved and a new prime minister to be announced in July.

Evenlode Income rose +0.8% compared to a fall of -3.1% for the IA UK All Companies sector and -3.0% for the UK market. Strongest contributors to the fund’s return included Smith & Nephew, Diageo and Sage. All three companies reported positive trading updates with healthy revenue growth continuing. The most negative contributors were Victrex and Burberry. Both companies released results during the month that we found reassuring (with good strategic progress and strong cash generation). However, their share prices weren’t helped by concerns over the global economic outlook.

In terms of portfolio changes, we were relatively active in May. We added a new holding in Bunzl, whose shares have fallen recently following a slowdown in sales growth. Bunzl provides its business customers with not-for-resale products such as napkins, plates, foil and safety glasses. It is the only global operator in a fragmented market with good long-term growth opportunities. We like the company’s competitive strengths, diversification and predictable cash generation. We also disposed of the fund’s holding in software engineering company Aveva. Aveva is a high quality business, but very strong share price performance since we initiated the position in early 2016 has left the company’s valuation and dividend yield less compelling relative to other opportunities. Elsewhere we continued to reduced the fund’s positions in Diageo, Cisco and Microsoft for valuation reasons whilst adding to several existing positions where we like the combination of quality, cash generation and dividend yield. These included Relx, Reckitt, Informa, Victrex, Burberry, Smiths Group, Hays and Howden Joinery.

On June 1st, the fund went ‘ex’ a first quarter dividend of 1.68p (B Inc estimated), representing growth of +4.3% year-on-year. Looking ahead, the provision of real dividend growth over time remains a key aim for the fund.

Hugh Yarrow 31 May 2019
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