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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – April 2017

A month of strong relative performance was the result of a number of contributory factors. ‘Top down’ the UK general election announcement and reduced fears over the outcome of the French election served to reduce political uncertainty despite a more aggressive tone emanating from the EU with respect to Brexit talks. Whilst politicians and the media continue to be fixated with the potential problems with Brexit, the fact is that in the short term in the absence of any concrete proposals corporate UK continues to trade with little disruption. In fact manufacturing companies that export are benefiting from a weakened currency and are underpinning a series of generally robust business confidence and growth surveys. Falling equity risk premiums present an accommodating environment for UK small and mid caps who have done their bit by continuing to deliver an improving ‘bottom up’ earnings story. Recent share price rises will, as ever, be tested in May as there are relatively few corporate results to grab investor attention but we are reassured that our underlying income will continue to prove attractive in the current interest rate environment.

The largest contributor to performance in the month was W.S. Atkins, which received a cash offer that was recommended by the Board. Elsewhere we had twenty two stocks that delivered a double digit return over the month and these were spread across a wide range of sectors as the increase in fund valuation appeared to be widely based amongst our investee companies. Braemar and Acal bounced from oversold levels as investor sentiment improved and stocks such as N. Brown, Epwin, Hilton Foods, Hostelworld and XP Power attracted buyers after good results or trading statements. We top sliced a number of holdings that had performed well including Jupiter, Segro and Fenner and we added to IMI, SOCO and Connect amongst others. Looking forward, the main area of concern for domestic investors in the short term is the consumer as a combination of rising costs and falling real incomes have led to falling consumer confidence figures. On the positive side, however, now that we have the benefit of analysing all of the December year end results, the consensus has seen a relatively positive series of earnings upgrades for UK small and mid caps. We shall wait and see if this is sufficient to maintain investor enthusiasm but continued positive UK equity fund flows bode reasonably well.