Talk of impending trade wars and fears over the direction of the coalition government in Italy dominated commentators’ thoughts on the International stage in the last month as the US economy powered ahead. In an increasingly uncertain political environment, the reality is that investors are taking their lead from the corporate sector at the moment, which appears to be in robust health. At home, the much anticipated rate rise did not materialise, leading to weaker sterling and creating a small tailwind to a market that was in a buoyant mood. Interestingly, so far this year, whilst fund performance has been a beneficiary of corporate activity, and we expect this to continue, we have not invested in a single IPO as the number of opportunities to invest within our investment remit has dropped considerably compared to last year. In a market searching for income we find this surprising and perhaps we are due a period of catch up in our second half.
At the stock level all of our oil and gas related holdings, John Wood, Diversified Gas and Oil and SOCO, performed well. This sector aside, there were no discernible performance ‘themes’ and prices reacted to stock specific news. On the positive side, Shoezone and Bloomsbury responded well to result announcements and STV to the result of their strategic review, part of which will lead to enhanced dividend payments going forward. On the downside Crest Nicholson fell as it released a disappointing trading update, highlighting ongoing margin pressure and Dairy Crest fell as it raised funds, which we supported, to increase their cheese making capacity. We invested positive fund flows into a number of existing stocks in the portfolio including Babcock, De La Rue, Marstons, McColls, Personal Group and Saga. As a generalisation, over the past couple of years we have run our ‘winners’ to capture capital gain and after lengthy periods of strong performance we are now at the point that a number of these holdings are getting close to a two percent yield, the point at which we will sell. Funds raised will be reinvested in stocks yielding more than four percent, and as a result we expect the underlying yield on our portfolio to gently increase over the next few months.