A steady stream of company results were released during the month. Reflective of a supportive economic backdrop, the tone was generally positive and helpful for stock market sentiment. Evenlode Income returned +1.5% over the month compared to +0.7% for the IA All Companies sector and +1.3% for the FTSE Allshare.

We have been reassured by updates from Evenlode Income holdings in the last few weeks, particularly in terms of free cash flow generation and dividend growth. The most positive contributors to the fund’s return included Reckitt Benckiser, Unilever, Astrazeneca, Diageo, Jardine Lloyd Thompson and Victrex, all of which reported encouraging updates. The most negative contributors were Spectris, Smiths Group and Smith & Nephew which also all released results.

We took advantage of some share price moves during results season, including adding to several stocks such as Spectris, Smiths Group and Compass Group where valuations improved and we continue to like the long-term investment case. On the sell-side we reduced positions in Burberry and Aveva on valuation and dividend grounds. We also finished exiting the fund’s small position in PZ Cussons. Though there is much to like about the business, we have some concerns over its relatively high exposure to the UK in categories that are experiencing pricing pressure. We have also had the opportunity to add to some of PZ’s larger, more diversified peers over recent weeks on good valuations and dividend yields.

Current conditions are relatively benign for the global economy. However, valuations are in aggregate reasonably unattractive, corporate indebtedness has been creeping up, interest rates are rising and trade tariffs present a potential risk. In this context, we continue to focus on cash generative, competitively advantaged businesses that offer a balance between a good dividend today and the potential for dividend growth through a range of economic conditions.

Hugh Yarrow 31 Jul 2018
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