The year started well for equities. Better than expected inflation data in the UK and US helped the mood, and interest rates in Europe and the UK are now expected to fall meaningfully during 2025. US trade tariffs remain a risk and source of volatility, but worse case scenarios are now, at the margin, deemed less likely. Meanwhile, the possibility of a ceasefire in Ukraine is in the back of investor minds.

Evenlode Income rose +7.0% during the month, compared to a rise of +4.2% for the IA UK All Companies sector and +5.5% for the FTSE All-Share. The strongest contributors to return were Experian, RELX, Smiths Group and Spectris. Experian and Spectris released positive trading updates highlighting strong trading in the final quarter of 2024. Smiths increased its full year organic revenue growth guidance and announced plans to sell or demerge two business units to focus on its higher growth industrial businesses. RELX increased on no specific news. The only negative contributor of note was Diageo, whose shares fell -4.7%. Though there are early signs of recovery in most of the company’s markets, profit would be negatively impacted if the US were to go ahead with tariffs on Mexico and Canada.

The main portfolio change was an exit from the fund’s remaining holding in Microsoft. The stock is trading on a free cash flow^[1] yield of 2% and dividend yield^[2] of less than 1%, compared to 10% and 3% for these metrics when the position was initiated in January 2011. There are other UK-listed holdings also offering strong prospects for growth but with more attractive free cash flow and dividend yields.

Looking ahead, the global economic and geopolitical backdrop remains volatile and erratic. With that said, we think that sensibly run market-leading companies with self-funding business models are well placed to strengthen their competitive positions in this environment. The portfolio is a diverse list of market-leading companies with healthy aggregate growth potential both for 2025 and beyond, and valuations are attractive.

^[1]Free Cash Flow (FCF) - A measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. FCF Yield is FCF per share divided by the current share price.

^[2]Dividend yield – Calculated by dividing the dividend per share by the current share price.