Equity markets declined in March as worries about the global economy and the impact of potential US tariffs continued, likely augmented by high prices for shares on the US market. Globally there has been a bifurcation with European shares performing much better than their US counterparts. The prospect of greater defence spending and its broader impact on industrial supply chains has helped sentiment toward some European companies. Greater defence spending is a form of fiscal stimulus and the potential for higher interest rates as a result pushed the banking sector higher. Globally it was the Information Technology (IT) and Consumer Discretionary sectors that weighed on the market. The portfolio as a whole declined but by less than its comparator benchmark, the MSCI World Index. For the portfolio there was relative resilience in the IT and Consumer Discretionary sectors, although they still detracted in absolute terms. The Consumer Staples sector, the portfolio’s largest, fell marginally and was thus a benefit to relative performance. The financials sector was beneficial for the portfolio in absolute terms. It consists of the derivatives exchange operators CME Group and Deutsche Börse, who benefit from market volatility, and banking software company Jack Henry which has a resilient business model.
The fund’s financial year was at the end of February and so the final dividend distribution was paid for the 2025 financial year. For the year the distribution[i] increased by +15% in sterling terms. This is above the high single digit rate that the fund has achieved in recent years, helped somewhat by portfolio changes to manage valuation risk that favoured higher yielding companies. We think that high single digits is a sustainable growth rate for the distribution through time driven by our expectations of the free cash flow[ii] growth achievable by the portfolio. On this front it is encouraging that the free cash flow generated by the portfolio is remaining solid as demonstrated by recent corporate results.
[i] Distribution – When income is paid out to investors in Income class shares.
[ii] Free Cash Flow (FCF) - A measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. FCF Yield is FCF per share divided by the current share price.
Equity markets declined in March as worries about the global economy and the impact of potential US tariffs continued, likely augmented by high prices for shares on the US market. Globally there has been a bifurcation with European shares performing much better than their US counterparts. The prospect of greater defence spending and its broader impact on industrial supply chains has helped sentiment toward some European companies. Greater defence spending is a form of fiscal stimulus and the potential for higher interest rates as a result pushed the banking sector higher. Globally it was the Information Technology (IT) and Consumer Discretionary sectors that weighed on the market. The portfolio as a whole declined but by less than its comparator benchmark, the MSCI World Index. For the portfolio there was relative resilience in the IT and Consumer Discretionary sectors, although they still detracted in absolute terms. The Consumer Staples sector, the portfolio’s largest, fell marginally and was thus a benefit to relative performance. The financials sector was beneficial for the portfolio in absolute terms. It consists of the derivatives exchange operators CME Group and Deutsche Börse, who benefit from market volatility, and banking software company Jack Henry which has a resilient business model.
The fund’s financial year was at the end of February and so the final dividend distribution was paid for the 2025 financial year. For the year the distribution[i] increased by +15% in sterling terms. This is above the high single digit rate that the fund has achieved in recent years, helped somewhat by portfolio changes to manage valuation risk that favoured higher yielding companies. We think that high single digits is a sustainable growth rate for the distribution through time driven by our expectations of the free cash flow[ii] growth achievable by the portfolio. On this front it is encouraging that the free cash flow generated by the portfolio is remaining solid as demonstrated by recent corporate results.
[i] Distribution – When income is paid out to investors in Income class shares.
[ii] Free Cash Flow (FCF) - A measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. FCF Yield is FCF per share divided by the current share price.