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

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

The trough for recent trading for those companies still ‘open for business’ was last month and May has seen a gradual improvement across the board as lockdown restrictions have been relaxed. Corporate guidance is largely still removed but company statements do generally appear to be better than the most gloomy forecasts initiated at the height of the uncertainty as lockdown began. On a relative basis, the domestic economy appears to be slightly behind the curve with respect to recovery, however, as other countries have relaxed restrictions earlier. The importance of ‘consumption’ to our economy has led to debate amongst commentators about the sustainability of recovery as fears have increased as to the magnitude of the anticipated rise in unemployment as furlough schemes end. Whilst personal savings appear to have risen through lockdown it remains to be seen whether or not consumer confidence is sufficient to kick start the housing and retail markets, particularly with respect to big ticket items. The ‘bottom up’ feedback is to expect companies to tread relatively carefully with respect to restarting their businesses and only gradually increase ‘capacity’ and thereby cost bases as they get tangible evidence of demand improvement. Hence the widespread debate about the shape of the bounce back in economic activity.

At the stock level, the deferral or cancellation of dividends has continued across all market cap bands of the UK equity market. With most domestic companies having December year ends, the annual dividend decision for most Boards occurred in March, the time of most uncertainty with respect to the effects of the virus. Looked at alongside the ability to accept government support, it is unsurprising that a wide range of our investments have felt the need to suspend short term dividend payments. We are currently looking to add stocks that are still paying dividends to our portfolio alongside those that we believe will be in a position to get back on the dividend register earlier than most. This is still very much a work in progress for us. Once again, in a volatile market, there were no real discernible trends to our best and worst performers. Consumer facing stocks Halfords and Marstons were two of our better performers whilst Rank was one of the worst. A couple of our fund managers, Ashmore and Jupiter, performed well and National Express and Go Ahead, two transport stocks, performed relatively poorly. With little ‘hard’ corporate news we expect increased share price volatility to continue for the foreseeable future as sentiment fluctuates between ‘risk on’ and ‘risk off’ on short term Covid related news stories.