January 17, 2017 - 12:08 PM EST
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All information is at 31 December 2016 and unaudited.
Performance at month end with net income reinvested


1 April
Share price                      3.1%  0.7% 4.8% 26.1% 67.9% 75.5%
Net asset value                   5.5%  2.6% 7.7% 27.9% 59.8% 72.5%
FTSE All-Share Total Return      5.0%   3.9% 16.8% 19.3% 52.5% 61.8%
Source: BlackRock


BlackRock took over the investment management of the Company with effect from 1 April 2012.


At month end
Net asset value - capital only:                192.82p
Net asset value - cum income*:                 197.20p
Share price:                                   189.25p
Total assets (including income):               £52.0m
Discount to cum-income NAV:                       4.0%
Net gearing:                                       2.2%
Net yield**:                                       3.3%
Ordinary shares in issue***:                25,354,268
Gearing range (as a % of net assets)             0-20%
Ongoing charges****:                              1.0%


* includes net revenue of 4.38 pence per share.
** The Company’s yield based on dividends announced in the last 12 months as at the date of the release of this announcement is 3.3% and includes the 2016 final dividend of 3.90p per share declared on 21 December 2016, payable to shareholders on 10 March 2017 and the 2016 interim dividend of 2.40p per share announced on 29 June 2016 and paid to shareholders on 2 September 2016.
*** excludes 7,579,664 shares held in treasury.
**** Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 31 October 2016.


Sector Analysis   Total assets (%)
Media 9.5
Travel & Leisure 9.1
Support Services 8.5
Pharmaceuticals & Biotechnology 8.1
Banks 7.9
Tobacco 7.2
Oil & Gas Producers 6.6
Financial Services 5.8
Food Producers 4.7
General Industrials 4.3
Non-Life Insurance 4.0
General Retailers 4.0
Fixed Line Telecommunications 3.8
Mobile Telecommunications 3.2
Food & Drug Retailers 2.6
Construction & Materials 2.4
Aerospace & Defence
Real Estate Investment & Services
Real Estate Investment Trusts 0.7
Net Current Assets 1.8
Total 100.0


Ten Largest Equity Investments
Company  Total assets (%)
British American Tobacco 6.1
Unilever 4.7
Lloyds Banking Group 4.6
AstraZeneca 4.2
Royal Dutch Shell ‘B’ 3.8
BT Group 3.8
RELX 3.7
Sky 3.7
HSBC Holdings 3.2
Vodafone 3.2


Commenting on the markets, Adam Avigdori and Mark Wharrier representing the Investment Manager noted:
During the quarter the Company returned +2.6% whilst the FTSE All Share Index returned +3.9%.
UK equities made further progress in the fourth quarter driven by the anticipation of a change in policy direction in the US leading to higher economic growth, inflation and interest rate expectations. The US Federal Reserve suggested it would permit above target inflation levels and the US presidential election result added to expectations for government spending to increase.  OPEC surprised many commentators, leading to a rally in oil prices, by organising production cuts amongst not only the cartel but also other notable producers, including Russia.
Relative underperformance during the quarter was predominantly driven by market moves rather than stock specifics. The outperformance of the resources and banking sectors, areas that we remain underweight, detracted whilst consumer staples and cash compounders underperformed as bond yields rose, in theory reducing the value of their long-duration cash flows.
On the positive side, stock fundamentals were once again an important driver of performance. Sky was the largest contributor during the quarter after receiving a bid from 21st Century Fox at a significant premium to the share price. Despite offering a lower dividend yield than the market, we were attracted to Sky’s cash generative business and vast customer base, giving the benefits of scale to invest in new content and services, attributes that were clearly undervalued by the market. RPC Group reported H1 results showing strong revenue growth helped by recent acquisitions as they lead the way in the consolidation of the European packaging industry. Building and plumbing distributor Wolseley performed well following the US presidential election result in anticipation of an increase in government spending on infrastructure.
During the quarter we added new positions in Aggrekko and Babcock whilst adding to our recent purchase in Elementis. Aggreko shares have fallen c.70% since their peak and we feel that with the removal of the final profitable contracts from expectations, the risk/reward trade-off is now favourable and the company offers attractive revenue growth potential from contract wins within emerging markets. Babcock, an outsourcing group with a bias towards defence markets is company with strong revenue visibility and high barriers to entry, which having de-rated after a difficult two years, we feel offers potential upside to the current valuation.
Macroeconomic volatility has been an important driver of equities throughout 2016 and has tended to overwhelm the stock specific factors at the heart of our process.  However, over the longer term, earnings and cashflow growth tend to be the dominant driver of share prices.  If equity markets fail to recognise that, corporates buyers have the potential to; the bid for ARM Holdings during the summer was a good reminder of that dynamic as was the bid for Sky from 21st Century Fox more recently.  Markets are likely to remain skittish given macro headwinds, likely volatility in bond markets and an increasing level of political risks.  However we continue to find opportunities in those companies that can generate cashflow from strong business models, have favourable industry characteristics or scope for management driven self-help. 
While sometimes unnerving, we will continue to use market volatility to provide buying opportunities in those types of companies.
17 January 2017

Source: PR Newswire (January 17, 2017 - 12:08 PM EST)

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