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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – April 2022

Investor sentiment became more bearish through the month as inflation worries, reductions in GDP forecasts and fears of a looming recession dominated headlines. The recent central bank policy of raising interest rates here and in the US has led to short term strength in the US$ which tends to be a relative negative for the stocks that we invest in and has contributed to a fall in equity prices since the month end. Supply disruption as a result of continued lockdowns in China and the rising domestic cost of living are not new news but contributed to the overall feeling of gloom. As always in these situations the bad news eventually gets priced into valuations and investors start to ‘bargain’ hunt. The lead indicator of this tends to be a pick-up in corporate activity as companies and private equity seek to take advantage of the reduced valuations in the public market. For the companies that we invest in, we would expect there to be some downward pressure on forward earnings estimates but note that there were relatively few meaningful upgrades through the recent results season as company directors were obviously aware of a lot of the headwinds and sought to keep a lid on expectations.

We added one new stock to the portfolio in the last month, Johnson Matthey, best known for catalytic converters, although we have stopped buying as the price has risen sharply after takeover speculation. Continuing in the same vein, Homeserve has risen strongly after confirmation of takeover discussions and the majority shareholder in VP Group announced that he has put his stake up for sale. We topped up a number of existing holdings on share price weakness including Synthomer, Tyman, Bodycote and Strix. On the sell side, we reduced our exposure to EMIS and Essentra on yield grounds and top sliced Bloomsbury, Tate & Lyle and Drax. Telecom Plus, Rathbones and XPS performed well, as did Mortgage Advice Bureau after the purchase of Fluent Money Group. On the downside, TT Electronics, Close Brothers and Dunelm detracted from performance. We continue to believe that company dividends and underlying balance sheet strength should ultimately provide some valuation support in the current turbulent times.