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

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

The boost given to ‘value’ stocks by the announcements of viable Covid vaccines continued through the month and importantly it was across all market cap bands because for the bounce to be sustained, fund flows need to be directed to large cap ‘value’ as well as small and mid-caps. Looking at the valuations of companies within the portfolio, we believe there are a number of bottom-up factors that should help a relative re-rating of the types of stocks that we invest in. A gradual improvement in underlying trading and increased corporate confidence should lead to more earnings guidance and encourage a shift from short term momentum driven share price moves to a more tangible basis of valuation. As visibility over cash flows gradually improves more Boards should feel more able to start paying dividends again. Around the Board table there will be a lot of discussion about the timing of the resumption of payments and the level at which to resume payments. Inevitably there will be some surprises, both positive and negative, and as income managers we obviously anticipate an increased level of engagement with company Directors with respect to these payments.

In the last month at the stock level there was no discernible theme to either our best or worst performers. Elementis responded strongly to a takeover approach from Mineral Technologies who have subsequently come back with indications of a higher offer which has been deemed inadequate by the Board. Headlam released a positive trading update leading to analyst upgrades, Wood Group was buoyed by the increase in the oil price and Epwin by the improving domestic building and RMI markets. On the other hand, the relatively poor performers over the month included Signature Aviation after a trading statement, XPS Pensions, Personal Group and Moneysupermarket. In terms of trading, we have used recent share price strength to reduce exposure to stocks that we believe are some way away from returning to previous levels of dividend such as Senior, Halfords and Crest Nicholson and reinvested for an income uplift into companies such as Devro, Smart Metering Systems and Telecom Plus. Needless to say, this income management is very much an ongoing process and will be helped as the capital values of some of our more oversold stocks rebound.