Interestingly, British American Tobacco and Imperials Brands, which we do not own, make up c.8% of the index, returned 56% and 30% respectively over the course of the calendar year. UK economic growth remained subdued, with official data showing very modest expansion across the economy. Service and consumption contributions were marginal, business investment was mixed and continued loosening of the labour market signalled softer demand conditions. This was reflected in the relative underperformance of consumer discretionary stocks held within the portfolio. The Autumn Statement came and went without consequence, with most of the disruption incurred in the leadup to the event.  UK equities outperformed the real economy, with the FTSE 100 reaching record highs, highlighting a divergence between financial markets and underlying economic activity.

Turning to portfolio activity, we took the opportunity to take some profits in Barclays, whose price-to-book valuation reached a level last seen in 2008. The company has been an exceptional performer for the portfolio over the past couple of years and in this quarter alone returned 25.4%. In the period, Unilever spun off The Magnum Ice Cream Company into a stand-alone listed business. We took the decision to exit this small position. DCC, a diversified energy sales, marketing and distribution group, reported solid numbers and gave a positive update regarding the streamlining of its operations - we added to the position. We also continued to build out our new position in Rotork, who are a global leader in flow control and actuation solutions. They provide intelligent actuators, gearboxes and valve control products. Given product complexity, service revenue is growing and ‘sticky’. Their products will be in high-demand for data centre and small-modular reactor infrastructure. Having initiated a small position in B&M European Retail in the previous quarter, we were less than impressed with the subsequent market update that the CFO would be resigning having failed to properly account for freight costs – which led to a profit guidance downgrade. Despite this, we continued to add to the position on weakness, believing in the long-term strategy of the new CEO and the fact that the shares remain on a discounted valuation vs its long-run average. Finally, in the fixed interest book, we purchased a new issue in Aroundtown, a European real estate company, paying a 5.25% coupon, with a gross redemption yield of 5.64%.

AstraZeneca regained its position as the biggest holding in the portfolio following a 25.4% run up in its share price over the quarter, a move mirrored across the wider healthcare sector, which also saw GSK perform strongly.  Strong performance from Barclays and Lloyds Banking Group aside, the wider financials component of the portfolio continues to thrive, with IG Group Holdings reporting increased user growth through its acquisition on Freetrade. Consequently, revenue and earnings guidance were upgraded. Rio Tinto performed strongly over the quarter. The company achieved several operational milestones, as well as being a beneficiary of price appreciation in base metals – particularly copper. BAE Systems was the biggest detractor from performance, as investor sentiment weighed on defence stocks after a strong run. The case for long-term increases in defence spending remains unchanged. RELX continued to drag on performance as AI uncertainty weighs on the business case for some products. As previously mentioned, we believe the business to have a significant competitive and intellectual property moat.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.