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.

The outbreak of significant hostilities in Israel and the Gaza Strip drove risk aversion across many asset markets during the month. However, the initial spike in the oil price did not hold, and in fact, for the month as a whole, Brent was around 7% lower at $89 (having closed September at a high level following OPEC production cuts). In the past, a major increase in political tensions in the Middle East region has often led to a strong performance from government bond yields, but that did not generally prove to be the case, particularly in the US. In the UK, further evidence emerged of an employment market returning to equilibrium. The vacancies/unemployment ratio fell to 0.69 vs 1.02 a year ago, and regular pay growth eased slightly to 7.6% vs 8.0% in June. The September CPI print was flat at an annual rate of 6.7%, which surprised some commentators, with the rise in petrol prices offsetting falls in food and other items. However, the October CPI number will fall significantly as a 25% increase in gas and electricity prices last year falls out of the 12-month calculation and as food inflation continues to ease. These base effects are likely to see a 170-200bps fall in the annual rate of inflation when announced in mid-November which would see CPI below 5%. This event is likely to cement the view that the Bank of England tightening phase is over and may well boost consumer confidence as well as investors’ perceptions of the UK economy, as it will no longer look like an extreme outlier.

October was a very difficult month for the Fund. The UK FTSE All Share was down 4.18% across the month. The Fund materially underperformed this (down 8.23%). Looking at results and performance in October across these sectors. The two sectors that created a performance drag were oil and banks. The big oil names, including our largest absolute position BP, performed in line with the market (BP), or strongly (Shell) - on a relative basis, as can be seen from the combination of the two tables, the net of BP (which is one of our biggest positions) and Shell (where we are materially underweight) was a negative. We also own several smaller oil names, with two focused on the Middle East (Energean/Petrofac), which fell due to the issues in Israel. In the banks sector, the results season was disappointing. There were generic cross sector issues and some specific reasons – the main generic factor was disappointing net interest income/margin (NIM).

October has often been a difficult month for equity markets to navigate, particularly as noted above it can often be seen as ‘confession season’ when companies must hold their hands up and admit that they will meet analysts’ full-year earnings expectations. This has been a feature in parts of the market this year but has coincided with the outbreak of war in Israel and a somewhat destabilised bond market in the US. This combination has led to a severe outbreak of risk aversion and, critically, no focus on valuation within the equity market. We have spent much of the last 12 months writing about how modest valuations are across our portfolio, and yet, as we have seen, this has made little difference in the very short term. However, valuation has to matter in the end, and it will do so again. 

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.

FTSE International Limited (“FTSE”) © FTSE 2017. The Industry Classification Benchmark (“ICB”) and all  rights in it are owned by and vest in FTSE and/or its licensors. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. Neither FTSE, nor its licensors accept any liability for any errors or omissions in the ICB. No further distribution of ICB is permitted without FTSE’s express written consent.

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.