December was a quiet month for company news, with share prices mainly driven by economic and political factors. Positive sentiment relating to the Covid vaccine rollout and the US election continued. The UK market was also helped by the last-minute trade agreement between the UK and the EU. The pound rallied to a two-and-a-half year high against the dollar, with domestically-exposed constituents of the UK market performing particularly strongly.
As with November, Evenlode Income rose (+1.3%) but lagged the FTSE All-Share (+3.9%) and IA UK Companies Sector (+4.5%). Sector rotation trends within the market were not dissimilar to November. The fund’s relative performance was impacted by its zero exposure to the resources sector and limited exposure to financials. The fund’s exposure to the consumer branded goods sector also dragged on return as the shares of more stable, multinational companies generally lagged the rally.
The most positive individual contributors to Evenlode Income’s return were Victrex, WPP, Hays and Relx. Victrex shares rose after releasing reassuring final results which confirmed the strength of the company’s cash generation and balance sheet, and was accompanied by the resumption of dividend payments. WPP held an investor day, with management setting out the company’s digitalisation strategy and medium-term growth targets. Hays and Relx rose on no specific news. The only negative contributors of note were Unilever and Sage, whose shares fell -3.8% and -3.9% during the month on no specific news.
Over the last quarter, Mr Market has been most interested in the shares of more economically sensitive, financially leveraged and asset-intensive companies. As a result, the fund has lagged the rapid and significant market rally. However, the underlying companies within the portfolio have coped well with the recent crisis and continue to enjoy market-leading positions, cash generative economics and long-term good growth prospects. This makes us feel optimistic on the portfolio’s prospects over the coming year and beyond.