In a similar pattern to November, December saw a brief stock market decline in the middle of the month driven by the US but ultimately tracked sideways, being slightly down in sterling terms. The European market continued to be strong, driven by financials and parts of the industrials sector, particularly defence-related companies. Again, in common with recent times, the IFSL Evenlode Global Income portfolio demonstrated less volatility and ended the month broadly in line with the index. The Information Technology sector was a relative benefit to the fund’s performance in December but for 2025 as a whole was a major drag. However, the very strong performance for capital goods companies in the Industrials sector combined with a weak showing for business services companies that the Evenlode strategy favours meant that Industrials was the biggest driver of underperformance for the year by sector.

With the fund having lagged its benchmark significantly, we have seen valuations improve in the form of compressed earnings multiples and higher free cash flow and dividend yields. This seems to us an attractive opportunity, particularly relative to the broader market, but valuations must be backed by fundamental business performance. With a couple of exceptions, primarily the spirits companies Diageo and Pernod Ricard, we are satisfied that business is progressing well. Ultimately it is that fundamental performance that will drive returns in the medium to long term. If the valuation compression that has been experienced in the last couple of years reverses, then what has been a headwind to realised market performance would turn to a tailwind. We don’t know when that might happen, but last month there were tentative signs that some less fashionable areas of the portfolio were finding more favour in the market - companies such as Omnicom, Roche and Accenture. The 2.8% underlying yield being generated by the portfolio is an indicator of the value opportunity that is present while we wait.