The UK stock market continued to recover in March. Though recent signs of slowing global growth linger in investor minds, a shift in tone from the US Federal Reserve has led to a significant reduction in interest rate expectations, helping sentiment. In the UK political uncertainty continues, though the pound has remained reasonably steady. In terms of fundamental corporate news, it was a quieter month with final results season drawing to a close.

Evenlode Income rose +3.4% compared to a rise of +2.7% for the FTSE All-Share and +1.8% for the IA UK All Companies sector. The fund’s most positive contributors were Unilever, Diageo and Reckitt Benckiser, all of which rose on no specific news. The most negative contributor was Relx, with concerns relating to the growth in open-access academic journals resurfacing. We acknowledge this trend but also think that Relx will be able to manage and adapt to it long-term, particularly in the context of its well diversified overall portfolio. Spectris and Victrex were the only other negative contributors of note, moving lower on no fundamental news.

This month we exited the fund’s small positions in Johnson and Johnson and Novartis for valuation reasons. We recycled the proceeds into several existing holdings where our forward return estimates look more attractive. These included Relx, Howden Joinery, Page Group, Hays, Schroders, Victrex, Spectris, WPP, Smiths Group, Informa and Reckitt Benckiser. We also reduced the fund’s position in Diageo and initiated a small position in Intertek. Intertek is a global leader in the quality assurance industry and has several characteristics we like including a good economic ‘moat’ and an asset-light, repeat-purchase business model. Intertek’s relative valuation appeal has increased recently, and we think dividend growth potential is interesting thanks to the company’s structural growth prospects and compounding free cash flow stream.

Hugh Yarrow 31 Mar 2019
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