February was characterised by very high geopolitical uncertainty and market volatility – tensions built in the Middle East, the US Supreme Court ruled Trump’s liberation day tariffs illegal, and nerves around AI disruption risk rippled through the market sector-by-sector.

Evenlode Income rose +4.0%, compared to a rise of +3.9% for the IA UK All Companies sector and +6.5% for the FTSE All-Share. The UK market’s strength was helped by another strong month for commodity stocks which, along with financials, have become a large part of the index over the last two years.

The most positive Evenlode Income contributors were Unilever, GSK and Howden Joinery – all releasing strong full year results. Unilever delivered healthy revenue and margin expansion, and announced a new EUR1.5bn share buyback. GSK posted +12% earnings growth and is part way through a £2bn share buyback. Howden delivered solid +8% earnings growth despite a tough year for its end markets, and announced a new £100m buyback. Sage, IntegraFin and Autotrader were the biggest detractors. The shares of these companies fell on no news, but sentiment was impacted by AI nervousness. We understand the potential risks to digital-orientated holdings, but continue to view proprietary datasets, deeply embedded domain expertise, and long-standing trusted relationships with risk-adverse clients as sources of formidable competitive advantage. These holdings are also on the front-foot with their AI strategies, growing strongly and highly cash generative. LSEG, RELX, Sage and Experian have announced buy-back programmes totalling approximately 7%, 6%, 4% and 3% of shares in issue, respectively, since the start of the year. This significant de-equitisation is highly accretive to owner earnings at current valuations.

In terms of portfolio changes, we trimmed Diploma, Halma and Games Workshop, which have performed strongly over the past year leaving valuations less attractive. We also exited the small remaining position in LVMH, having exited most of the holding in December. Proceeds have been used to fund a variety of UK-listed existing positions where we view the combination of quality, growth and cheapness as particularly compelling.

It is a brave person to predict exactly what will happen within global stock markets over coming weeks and months - market trends feel pulled taut and volatility is picking up. If history is a guide though, the beauty of shares in cheap, highly cash generative, low-leverage market-leading companies is unlikely to remain forgotten to Mr Market indefinitely, particularly when the huge momentum trades of the last five years begin to lose steam, and investors start seeking diversification. The portfolio companies continue to grow at a good rate and spin off a huge amount of cash – with the free cash flow yield standing at 6.1% for this year and 6.6% for next, comfortably covering the 3% dividend yield.