It was a good month for the Trust following the general election result and continued recovery in Sterling. The strongest performance, predominantly, came from companies positively exposed to the domestic economy including Bolton-based corporate finance company K3 Capital, Severn Trent (no longer at risk of being nationalised), bowling operator Ten Entertainment and flooring distributor Headlam. Our trading activity following the election result was fairly muted, however where we did add to positions it tended to be in the smaller company area (such as Palace Capital and Shoe Zone), where shares remain on low valuations and did not react materially to the result.

As at the end of December the portfolio was on an average forward P/E of 12.5x. Therefore while 2019 was a good year for UK equities, in our view the portfolio valuation remains modest. In an environment that is scarce for income, the 4.4% average forward dividend yield of the portfolio also remains high (for example versus what you can receive in an average UK bank account!). We will therefore continue to deploy a moderate level of gearing.

Glossary

Gearing: A measure of a company’s leverage that shows how far its operations are funded by lenders versus shareholders.

Price to earnings (P/E) ratio: A popular ratio used to value a company’s shares. It is calculated by dividing the current share price by its earnings per share. In general, a high P/E ratio indicates that investors expect strong earnings growth in the future, although a (temporary) collapse in earnings can also lead to a high P/E ratio.

Yield: The level of income on a security, typically expressed as a percentage rate.