The Fund aims to achieve long-term capital growth and to generate a dividend yield that is above that of the FTSE All-Share Index average. The Fund focuses predominantly on stocks within the FTSE 350 Index that generate a prospective yield above that of the FTSE All-Share Index average. The Fund's performance benchmark is the FTSE All-Share Total Return Index denominated in sterling.Please note that for capacity reasons the Fund is now 'soft-closed' to new direct investors.

After a bit more balance in terms of style leadership in June, July saw markets revert back to their previous trends and value again underperformed leading to another difficult and disappointing month for the Fund. Sterling rallied c. 7% against the dollar, during the month. We would normally expect this to materially assist the Fund’s relative performance given we are very underweight overseas-earners. It was, however, these sectors that continued to lead the market, which means in sterling terms they have once again re-rated materially. Diageo, for example, re-rated c. 15% in July when you take into account both sterling’s appreciation and its own price action.

We had numerous positive company updates (versus consensus expectations and in an absolute sense) during the month, but there was scant feed-through to share prices. The mining sector led the positive contributors in July underpinned by China’s recovery from Covid-19 and rising metal prices. Both Rio Tinto and Anglo American subsequently beat our dividend forecasts. In other positive news, a few companies confirmed they will now pay their dividends after initially deferring them (Severfield, for example). These positives for the Fund dividend were offset by the weaker dollar, meaning our existing guidance (a fall of between 45% and 55%), remains valid. Other strong performers were Phoenix and Drax.

There were a number of positive statements during the month: DFS reported c. 70% like-for-like growth since lockdown ended; Tyman, Norcros and Headlam are all back to positive like-for-like growth; Sthree had better-than-expected results, with signs that demand will return quickly given their end use market mix. We would normally expect these positives to lead to strong share price performance but despite the very low valuations of these stocks, performance was sluggish. Elsewhere, ITV, Countryside, Vistry and National Express also performed poorly.

During the month we exited our position in Brewin Dolphin. It is a much improved business compared to where it was four or five years ago. To a large extent that manifests itself in the reasonable mid-teens P/E multiple that the stock now sits on. Whilst this is not expensive given the defensive and sticky nature of its revenue and assets, it offers less upside compared to the rest of the portfolio.

The market remains very stretched between the haves (‘growth’) and the have nots (‘value’). We are confident that this will reverse and when it does, the reversal is likely to be swift given the crowded positioning on the ‘growth’ side of the divide. We are often asked what the catalyst for the reversal could be. There are a range of answers. It could be the Covid-19 narrative improving (particularly in the US); it could be the arrival of a vaccine; it could be the continuing rebound in economic data; it could be increasing corporate activity (of which there was some initial signs in July, such as Hastings); or it could be that inflation starts to feed into the system. There is an increasing amount of commentary around this risk amongst market participants and the acknowledgement that it is a key potential outcome of the policy response to Covid-19 and other trends such as de-globalisation. What is clear though, is that despite the discussion and the acknowledgement of the risk, very few people are positioned for this outcome.

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the FTSE All-Share TR 12pm adjusted. Performance of other share classes may vary and is available on request.Where shown, monthly returns table shows compounded discrete monthly performance.

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Past performance is no guarantee of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The annual management charge is deducted from the capital of the Fund. This will increase the income from the Fund but may constrain or erode potential for capital growth. The Funds investment include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile.