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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – November 2021

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – November 2021

The usual suspects of supply chain disruption, higher energy prices, and labour shortages continued to weigh on investor sentiment, which turned notably ‘risk off’ as worries over the new Omicron Covid variant increased. Growth in the domestic economy for the previous month was also below expectation. Whilst ‘bottom up’ corporate numbers were largely in line, they were not enough to redress the cumulative effect of disappointing macro news flow, which was reflected in underperformance by UK centric small and midcap stocks. However, on a more positive note, it seems we may have moved beyond some of the worst impacts of the global supply chain issues and we have recently seen better news closer to home with respect to the availability of HGV drivers. Inflation remained a concern for commentators and there was surprise that interest rates were held and not raised in the month. We believe a manageable level of inflation in the system, accompanied by the ability of companies to gently raise prices, is not necessarily a bad thing for the sort of stocks we invest in. As an income fund, one bit of positive news for us in a difficult month was that dividend payments appear to be rebuilding a bit more quickly than we had previously anticipated.

At the stock level we sold two of our bid situations, DMGT and Stock Spirits to reinvest into companies paying good levels of dividend including Secure Trust and DWF. We were also able to top up some of our poorer performers over the month as their share prices sold off but where our conviction over the investment case remain intact. These included Close Brothers, Brewin Dolphin and Vistry.  Whilst both consumer and industrial cyclicals underperformed as a group two of our better performers were Morgan Sindall and Halfords. Other good performers were Telecom Plus and Tatton Asset Management after good results.  On the downside Diversified Energy fell on continued ESG concerns.  We sold the last of our holding in IMI, which we have held for over six years, on yield grounds and took some profit in Bloomsbury.  As the recovery tailwinds earlier in the year have shifted to macro headwinds over the past couple of months prices of a lot of our investee companies have adjusted downwards accordingly.  This leaves them well placed to benefit when economies normalise as we move through next year, which we believe they will.  In the meantime the improvement in the income account should prove attractive to investors.