The Evenlode Global Opportunities Fund trailed its benchmark, the MSCI World Index, for the month of March. The month began with the onset of war in Iran. This has caused significant disruption across a range of financial markets. Equity market volatility has risen, with the VIX index^[1] at double its five-year average, and share valuations have fallen, with four consecutive weeks of decline across many international indices. Energy production and transportation have been disrupted, causing a spike in energy prices and raising expectations for inflation. This has led bond yields higher and dampened hopes for near-term rate cuts in the US. In short, geopolitical and economic uncertainty are on the rise.

In these periods, we expect the attractive fundamentals of the portfolio companies to provide protection and, as expected, the recent drawdown^[2] of the Fund has been less than that of our benchmark. This was achieved despite a significant relative headwind from the outperformance of energy stocks, which are not held in the portfolio due to their cyclicality and low product differentiation. While the current crisis is likely to result in elevated oil and gas prices, we continue to prefer companies with high returns on invested capital and reliable income streams, which are positioned to compound growth over a broad range of economic scenarios. The month ended with a brief reversal in market trends, as hopes for a peace settlement rallied equity markets. This period accounted for the portfolio’s underperformance, as riskier assets outperformed.

Another sector impacted by the recent conflict has been the consumer staples sector. The recent surge in inflation and the threat of higher for longer rates in the US nipped in the bud the hopes for an improved consumer environment in the coming year. While the Fund’s exposure to consumer staples has proven a short-term drag on performance, we are reassured by the commitment of their management teams to maintain marketing and build brand strength in preparation to take share when the consumer does recover.

The portfolio's valuation remains highly attractive both relatively and absolutely, supported by the excellent fundamental performance of the underlying companies. Both the portfolio’s free cash flow yield and free cash flow growth expectations are now at a significant premium to the wider market. In uncertain times, this provides us with confidence for future returns.

[1] The VIX index is the markets ‘fear gauge’, a measure of 30-day forward-looking volatility of the S&P 500 Index.

[2] Drawdown period is from announcement of war, 27^th Feb, to 27^th March.