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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – January 2020

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – January 2020

Whilst the ‘bears’ continue to highlight the risks of a gloomy outcome for Brexit, the ‘bulls’ now have tangible evidence of improving levels of business and consumer confidence, highlighted by the recent RICS survey and the improving trends in the housing market. Although the adage about being better off travelling than arriving springs to mind, there does seem to be a growing groundswell of opinion that the government will look to significantly increase spending, particularly on infrastructure, in the forthcoming budget, whenever that turns out to be. On a global basis, growth estimates have been hit in the last month by the spread of the coronavirus and analysts have been busy looking at the implications for both demand and manufacturing capacity in China. Despite this, as domestic confidence has improved, we have seen the first signs of increased corporate activity through fund raisings, IPOs and corporate deals. Indeed, our holding in Jupiter Fund Managers has just announced the acquisition of Merian Global Investors.

At the stock level there were disappointing updates from Elementis, N. Brown, Hays and Marstons, all of which were reflected in poor share price performance. On the plus side XP Power, Crest Nicholson, Pennon and Ultra Electronics all performed strongly. Interestingly there was no discernible macro theme or trend to either our best or worst performers over the month. It is fair to say that since the election sentiment towards the UK has been improving amongst investors who were generally underweight beforehand. For this to translate into a sustained improvement in company share prices however, we need to see tangible evidence of upwards earnings momentum which at the moment is still in short supply. Company announcements are still reflecting the pre-election slowdown and lack of direction in the domestic economy. Hopefully, this is essentially a timing issue and, as we move through the year, we will start to see upgrades across a wide range of UK equities which will then benefit from a useful relative valuation uplift.