Although the positive combination of central bank stimulus and the vaccine rollout continue, the absence of any new positive news has meant that the domestic equity market has paused for breath. To borrow the old stock market adage that you are ‘better off travelling than arriving’ we have travelled a long way in share price terms since the start of the recovery, and company earnings need a bit of time to catch up. Importantly, in a relatively quiet month for results, we believe that corporate updates remain broadly supportive of underlying valuations as investors continue to look through any short-term disappointments such as the recent delay in lifting restrictions. We expect the economic recovery to continue to provide upwards earnings momentum to the stocks that we invest in as we move through the year, although as we have said before investor enthusiasm may be dampened by the prospect of a pick up in inflation. We also continue to believe that a wide range of our holdings could trade at higher ratings than their historic averages as they are now inherently better businesses as a result of management action taken in the past twelve months or so. On the dividend front we continue to pay out all of our accrued income on a quarterly basis and are still in the process of shifting funds from low paying investments, on short term share price strength, to those with higher payouts.
In terms of fund performance over the month the top contributor was Morrisons which was the subject of two high profile offers from private equity, one of which has now been recommended by the Board. Bloomsbury performed strongly after a good set of results and the unexpected announcement of a special dividend. We sold some RPS and SThree into rising prices to recycle funds into higher yielding stocks which included adding to Direct Line, Telecom Plus, VP, Paypoint and Stock Spirits. Rank Group was a relatively poor performer but has bounced since the month end after a trading update that highlighted a ruling in its favour regarding a VAT claim. A number of domestic cyclicals detracted from performance in the month including Bellway and Vistry ahead of the end of the stamp duty holiday and N.Brown and Headlam. Gattaca, Halfords and Ultra Electronics were all relatively positive contributors to performance. We are hopeful of seeing improving confidence from the corporate world as economic activity appears to be recovering at a faster rate than expected. This is important as it will provide the next step in the road back to getting more and more companies to paying good levels of dividends and widening our investible universe.