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.

In the UK, the setting of the date for a general election in early July surprised most market commentators but did not materially impact sterling or bond yields. Labour’s consistent lead in polls over the last few months suggests that markets are expecting a decisive result, which in many respects may act as a further clearing event in the eyes of the international investment community. Indeed, the release of various economic data points over the month was more significant in shaping market movements. UK Q1 GDP comfortably exceeded expectations, coming in at 0.6%, driven by a very strong March at 0.5%. Notably, this was not driven by consumer expenditure or an early Easter but by investment spending. UK inflation fell significantly this month to 2.3% compared to 3.2% in the prior month.

With UK consumer confidence rising again this month by another two points to a fresh two-year high, and with consumers sitting on substantial excess savings, the Monetary Policy Committee (MPC) has many factors to weigh up at present in setting monetary policy. The slightly higher-than-expected inflation print had already made a June rate cut less likely than before, and the timing of the election in early July means any move might look politicised. As we have stated before, the UK probably only needs 50-75bps of monetary easing to stimulate a substantial pick-up in consumer activity due to the very high savings ratio at present and strong real wage growth. A change of government may also help drive a more confident consumer and could stimulate further business investment.

The UK stock market’s strength continued in May (with the FTSE All Share up a further 1.67%). Within this overall positive trend, the change in market leadership that has been evident since November continued, benefiting the Fund. The latter was up 4.23%, outperforming the market by 2.52%. The leadership change has been driven by a confluence of positive factors, including lower inflation, a modest uptick in UK economic activity, an acceleration in M&A activity and strong company results. This shift has led to a performance reversal of the previously strong defensive sectors, which we believe are still overpriced and where earnings blips are starting to occur. Conversely, cyclical sectors, such as the financial and commodity sectors (where the Fund is invested), are now outperforming.

Last month, we outlined the growing list of short-term catalysts for UK equities: potential divergence of UK central bank policy with the Fed, a divergence of economic growth with the US, accelerating M&A in the modestly valued sectors, accelerating self-help to unlock undervaluation, and gathering price momentum. All of these have strengthened during the last month, except for the potential divergence of central bank policy as the latest inflation print and wage data have probably deferred the first UK rate cut by a couple of months.

Whilst the unit price of our Fund has had a welcome move higher in the last three months, we would encourage all investors (both existing and potential) to look at the bigger picture. The UK has seen a steady de-rating vs other international markets since the Brexit referendum in the summer of 2016, and two or three months of better performance is merely a rounding error in the context of that longer term context. UK valuations, both for domestically orientated stocks and international ones, remain at heavy discounts compared to their own history or their international peer group. We believe we are in the mere foothills of a UK equity market recovery, which may take many years to fully play out.

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.