November was a positive month for the UK stock market, despite a fairly complex backdrop. After a slowdown in the global economy over the summer, recent leading indicators have shown some signs of stabilisation. However, US/China trade negotiations are by no means resolved, creating some uncertainty over the 2020 outlook. Meanwhile, investor sentiment towards the UK economy has improved as investors have begun to deem a Conservative majority at December’s election as the most likely outcome. This has led to a significant rally in both the pound and the shares of domestically orientated UK companies.

Evenlode Income rose +2.5% compared to +2.2% for the FTSE All-Share and +3.5% for the IA UK All Companies sector. The fund’s most positive contributors were Spectris, Sage and Howden Joinery. Test and measurement business Spectris continues to generate healthy levels of cash and, despite a difficult economic backdrop, is making good strategic progress in terms of focusing its portfolio and investing for growth. Sage and Howden Joinery also announced solid cash generative results, and continue to invest for the long-term. The main negative contributors were Compass and Euromoney. Results from Compass disappointed the market, with the news of continuing good organic sales growth (+6.4%) offset by a restructuring programme in its European business and limited expectations for near-term profit margin expansion. Euromoney released final results that were a reminder of the company’s customer embeddedness and cash generative business model. However, some uncertainty remains on the strategic review of its asset management information division.

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 (such as Bunzl, Reckitt, Unilever and Cisco). On this note, the fund went ‘ex’ a third quarter dividend of 1.68p* on 2nd December, +4.3% year-on-year. Over the medium term, we continue to view moderate real dividend growth as a realistic aspiration from the collection of resilient, cash generative businesses on which the fund is focused.

Hugh Yarrow 30 Nov 2019
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