January was very busy for geopolitics – Iran, Venezuela, Greenland and Davos filled the headlines. Within global stock markets, the key trend was a rotation away from the US into international markets. IFSL Evenlode Income had a difficult month in the UK context, falling -1.5% compared to a rise of +2.6% for the IA UK All Companies sector and +3.1% for the FTSE All-Share. Banking, mining and defence stocks continued to lead the UK market, which weighed on relative return.
In terms of stocks owned, the information services holdings - about 15% of the portfolio - were by far the biggest detractors, led by RELX, Experian and Sage on concerns around competition from generative AI companies. In short, we think the sell-off is an overreaction, with valuations beginning to factor in a terminal decline in free cash flow very imminently. We understand the potential risks that generative AI technology brings, but continue to view proprietary datasets, deeply embedded domain expertise, and long-standing trusted relationships with risk-adverse clients as sources of a formidable competitive advantage for these companies. In particular, we think their unique datasets will become more valuable in the world of generative AI. Accurate, high-quality data that can be relied on by professionals and their corporates employers to make mission-critical decisions will remain as essential as ever. Success is never a given - there is no such thing as a perfect company. But we think these holdings are very well placed to succeed in an AI-enabled world provided they continue to invest in properly harnessing and embedding new AI technology in the services they deliver.
Though these digital-orientated holdings are excellent companies, it’s worth noting that for the other 85% of the portfolio, almost all holdings have at their core a business model that delivers services and products in the physical world. The most positive contributors to return were Weir Group and Diageo. Weir’s share price benefitted from positive sentiment towards the commodities sector, with metal prices rising strongly during January. Diageo’s share price benefitted from encouraging US industry data.
In terms of portfolio changes, we exited the very small remaining position in Hays; we have higher conviction in other names in the portfolio. On the buy-side we topped up a variety of existing positions.
The portfolio is stocked with highly profitable, resilient, low-leverage companies that are growing at a good rate and spinning off a huge amount of cash. In the trend-following, fear-of-missing-out market of the last two years, these qualities have not been in demand, which has led to a great valuation opportunity. The free cash flow yield for IFSL Evenlode Income is now 6.2% for 2026, and 6.8% for 2027 - levels we haven’t seen since the early days of the fund a decade and a half ago.
Free cash flow (FCF) is a measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. Fund FCF yield is FCF of portfolio companies divided by their market value.
January was very busy for geopolitics – Iran, Venezuela, Greenland and Davos filled the headlines. Within global stock markets, the key trend was a rotation away from the US into international markets. IFSL Evenlode Income had a difficult month in the UK context, falling -1.5% compared to a rise of +2.6% for the IA UK All Companies sector and +3.1% for the FTSE All-Share. Banking, mining and defence stocks continued to lead the UK market, which weighed on relative return.
In terms of stocks owned, the information services holdings - about 15% of the portfolio - were by far the biggest detractors, led by RELX, Experian and Sage on concerns around competition from generative AI companies. In short, we think the sell-off is an overreaction, with valuations beginning to factor in a terminal decline in free cash flow very imminently. We understand the potential risks that generative AI technology brings, but continue to view proprietary datasets, deeply embedded domain expertise, and long-standing trusted relationships with risk-adverse clients as sources of a formidable competitive advantage for these companies. In particular, we think their unique datasets will become more valuable in the world of generative AI. Accurate, high-quality data that can be relied on by professionals and their corporates employers to make mission-critical decisions will remain as essential as ever. Success is never a given - there is no such thing as a perfect company. But we think these holdings are very well placed to succeed in an AI-enabled world provided they continue to invest in properly harnessing and embedding new AI technology in the services they deliver.
Though these digital-orientated holdings are excellent companies, it’s worth noting that for the other 85% of the portfolio, almost all holdings have at their core a business model that delivers services and products in the physical world. The most positive contributors to return were Weir Group and Diageo. Weir’s share price benefitted from positive sentiment towards the commodities sector, with metal prices rising strongly during January. Diageo’s share price benefitted from encouraging US industry data.
In terms of portfolio changes, we exited the very small remaining position in Hays; we have higher conviction in other names in the portfolio. On the buy-side we topped up a variety of existing positions.
The portfolio is stocked with highly profitable, resilient, low-leverage companies that are growing at a good rate and spinning off a huge amount of cash. In the trend-following, fear-of-missing-out market of the last two years, these qualities have not been in demand, which has led to a great valuation opportunity. The free cash flow yield for IFSL Evenlode Income is now 6.2% for 2026, and 6.8% for 2027 - levels we haven’t seen since the early days of the fund a decade and a half ago.
Free cash flow (FCF) is a measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. Fund FCF yield is FCF of portfolio companies divided by their market value.