The Fund aims to achieve consistent capital appreciation over the longer term by investing in stocks of primarily UK-listed large and mid-sized companies. Up to 10% of the Fund may be in international stocks. A thematic, top-down process is used to identify stock ideas and then married to a rigorous approach to valuation. Portfolio construction is benchmark-unaware with roughly equally-weighted positions in typically 30-40 stocks reflecting high conviction management.

Fund performance has been helped by our cautious position at the start of the year and by our focus on owning companies with strong balance sheets which are willing and able to invest in organic growth opportunities. Between March 1 and April 30 the Fund deployed over 30% gross cash into new investments. The overall quality, valuation and growth runway of the Fund has improved. 

The economic consequences of the Covid-19 health crisis and of the unprecedented government response remain impossible to predict with any degree of certainty.  It is thus even more important that we invest behind structural growth tailwinds that are likely to persist for the long term.  One such area is the continued shift away from fossil fuels towards more sustainable and less carbon-intensive forms of energy. We hold both National Grid and SSE, which earn a regulated return on their approved investment in energy infrastructure. We expect both companies to be major beneficiaries of the investment going into this energy transition, where we see total returns of 8-10% p.a. for the next 5-10 years. 

The investment necessary for the UK to meet its ‘net zero’ target by 2050 is significant: 

•    Electricity currently accounts for 18% of the UK’s energy, and this could rise to 60%. It would require SSE and National Grid to more than double their annual capex spend, which is already above depreciation by 2.25x for SSE and 2.5x for National Grid.

•    The seas around the UK have 100GW of offshore wind energy potential, which is more energy than Saudi Arabia can generate from its entire oil reserves. Most of the wind is off Scotland and the Irish Sea, so significant investment is required to get the energy to the largest areas of population.

•    Converting to electric cars and electricity-based heating will take average household electricity consumption from c. 3,000 KWh p.a. today to 16,700 KWh p.a. by 2055. This will require transmission investment by both National Grid and SSE. In its Southern Energy business, SSE also has some 3.8m household connections in need of a c. £1,500 upgrade each, so £5.7bn of spend to come, plus a similar amount again for local transformer upgrades.

National Grid and SSE are at the forefront of these investments. They are examples of how we are positioning the Fund to benefit from long-term structural growth rather than speculate on the unknowable shape and duration of the economic recovery.

Data shown net of fees, net income reinvested. Performance of other share classes may vary and is available on request. Please note that all fund performance is shown against the FTSE All-Share TR Index. 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.