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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – November 2019

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – November 2019

Another unexpected election result, but one which this time has largely been treated with a combination of relief and enthusiasm by the market. It should, for the first time since the Brexit referendum, enable the companies that we hold in the Fund to do what they do best i.e. invest for the future as there is no doubt that Brexit uncertainty has held back corporate spending. For corporate UK, the real frustration of the last couple of years has not been ‘leave’ or ‘remain’ but an inability to plan ahead with any certainty. Although negotiations with our European partners will not be plain sailing, importantly the direction of travel is now clear. Consensus estimates suggest a pick up in overseas investment into the UK, a stronger Sterling helping to mitigate inflation rises and the recent improving trend for real wage growth to continue, all of which should be reflected in improving business and consumer confidence. With the attraction of the UK to global investors increasing, attention will now shift more firmly towards the US and the global trade issues which coincidently appear to have improved as well.

We have seen the inevitable post election bounce in UK equities as investors have chased the domestic earners in particular, which is a relative strength of our fund. Time will tell us how sustainable this new-found investment is but the attraction of UK equities has certainly increased since last week, and we believe that we will continue to see bids for UK companies from both overseas competitors and private equity for the foreseeable future. Looking forward to next year, the IPO market should pick up dramatically in the first quarter which has historically provided our fund with some attractive opportunities. In the last month we received the monies from the takeovers of Greene King and BCA and have reinvested in a mixture of domestic earners, including Bellway, Headlam and Wincanton and overseas earners including Synthomer, Hostelworld and Vesuvius. Looking forward to next year whilst we expect to see continued earnings downgrades through the next few months, the hope is that increased domestic private and public activity can translate into a period of sustained UK GDP and corporate profit upgrades.