Latest trust commentary

Summary

Overall global equity markets delivered strong gains in 2025 and in the fourth quarter, supported by resilient economic growth, optimism around AI related productivity improvements, and a generally accommodative backdrop as central banks continued to ease policy rates. Against this backdrop, our performance was broadly in line with the benchmark in the fourth quarter of the year with Fund’s NAV performance of 6.3% broadly in line with the FTSE All Share TR return of 6.4%.

Performance was held back by our overweight exposure to UK small and mid‑caps, which lagged larger companies during the period. Strong contributions came from our positions in Standard Chartered and Lloyds Banking Group, supported by the continued strength of the banks sector. Aerospace and defence names featured prominently among both the largest contributors and detractors. Our large holding in QinetiQ was the largest individual detractor, but was offset at the portfolio level by having no exposure to Rolls Royce and maintaining a modest position in BAE Systems.

Markets

Overall global equity markets delivered strong gains in 2025, supported by resilient economic growth, optimism around AI related productivity improvements, and a generally accommodative backdrop as central banks continued to ease policy rates. While major equity indices finishing the year higher, this headline strength masked periods of significant volatility, most notably driven by the impact of US tariff policy. Sharp gains in real assets such as silver and gold also highlighted investor concerns about persistent long‑term inflation pressures and fiscal deficits.

During the fourth quarter, global shares delivered further positive returns supported by easing inflation pressures, evolving monetary policy expectations and continued investor risk appetite. In the USA, equity leadership broadened beyond the most highly valued technology stocks as the quarter progressed. In the UK, commodity-linked sectors performed well, supported by strength in materials, while financials also contributed to gains. Pharmaceutical stocks gained from clarity on US pricing on tariffs.

UK small and mid‑sized companies continued to lag the largest FTSE 100 constituents with sterling weakness and the impact of the Budget providing headwinds. The performance gap widened to its most extreme point in the last four years, with mid‑caps returning 9.5% compared with 55.9% for large caps for four years to end December 2025. Large caps greater concentration in banks and aerospace and defence companies has been fundamental to this outperformance. Banks have benefitted from higher interest rates and minimal bad debts, while aerospace and defence has benefitted from higher defence spending following Russia’s invasion of Ukraine in 2022.

Performance

The Fund delivered a NAV return of 6.3% in the fourth quarter, broadly in line with the FTSE All Share TR return of 6.4%. Relative performance was held back by our overweight exposure to UK small and mid‑sized companies, which underperformed larger‑cap peers by around 4% over the period, creating a drag on returns.

Aerospace and defence names featured prominently among both the largest contributors and detractors, however our overall exposure to the sector had little impact on relative performance. The sector gave back some of its sizeable gains from earlier in 2025 as it became clear that defence spending would be slower to materialise and rumours of a peace deal between Russia and Ukraine gained momentum. Our large holding in QinetiQ was the largest individual detractor. This was offset at the portfolio level from having no exposure to Rolls Royce and maintaining a modest position in BAE Systems.

Budget hotel operator Whitbread disappointed as the steep increase in business rates for large hotels announced in the UK budget will significantly impact its costs. An activist shareholder appeared on the register at the end of the year. Multi-utility Telecom Plus came under pressure following interim results which indicated greater competitive pressures together with a failure to communicate clearly a shift in cost allocation.

Most positive for relative performance were our positions in Standard Chartered and Lloyds Banking Group together with our overweight positioning in the banks sector. Banks are benefiting from higher interest rates, while Standard Chartered is growing its wealth management businesses rapidly in Asia. Other large contributors that we hold included utility SSE, where we supported the company’s capital raise to fund its growth programme in regulated electricity networks, and construction and infrastructure group Balfour Beatty. The latter is benefitting from contract renegotiations that reduced risk and improved earnings visibility together with disciplined capital allocation, a progressive dividend policy, and substantial share buybacks.

Outlook

UK equities have performed strongly this year, delivering strong returns and outperforming many global markets. Despite this strength, valuations remain attractive. The market also offers more balanced sector exposure than many global peers, being less dependent on the AI theme and instead providing a mix of good value, dependable income and high‑quality businesses. The outlook for further gains remains encouraging, particularly among the UK’s largest listed companies. Many of these businesses are showing strong momentum and clear growth potential — the elephants are galloping. Healthcare leaders like AstraZeneca and GSK have promising pipelines of new medicines; banks are benefiting from higher interest rates and aerospace and defence companies are well placed as global defence spending rises.

Opportunities also extend beyond large caps. Small and mid‑sized UK companies are trading at an unusually large discount to larger peers, despite historically commanding valuation premiums due to stronger growth potential. This creates an appealing opportunity for investors willing to explore this under‑researched area of the market.

We keep our focus remains on the long-term prospects for our portfolio holdings. Regardless of the policy and economic backdrop, our priority is building a diversified portfolio of fundamentally mispriced UK opportunities, aiming to grow income ahead of inflation and capital through rising income.

• Capital erosion: Where fees are charged to capital instead of income, or a fixed distribution amount is paid regardless of the Company’s performance, there is the potential that performance or capital value may be eroded.

• Concentration risk: The Company may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the company, both up or down.

• Concentration risk: The fund may be concentrated in a limited number of geographical regions, industry sectors, markets and/or individual positions. This may result in large changes in the value of the fund, both up or down.

• Counterparty risk: The fund may have contractual agreements with counterparties. If a counterparty is unable to fulfil their obligations, the sum that they owe to the fund may be lost in part or in whole.

• Currency risk: If the Company’s investments are denominated in currencies different to the currency of the Company’s shares, the Company may lose value as a result of movements in foreign exchange rates, otherwise known as currency rates.

• Derivatives risk: Derivatives, which are financial instruments deriving their value from an underlying asset, may be used to manage the portfolio efficiently. A derivative may not perform as expected, may create losses greater than the cost of the derivative and may result in losses to the Company.

• Gearing risk​: The Company may borrow money to make further investments, this is known as gearing. Gearing will increase returns if the value of the investments purchased increase by more than the cost of borrowing, or reduce returns if they fail to do so. In falling markets, the whole of the value in such investments could be lost, which would result in losses to the Company.

• Liquidity Risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. In difficult market conditions, investors may not be able to find a buyer for their shares or may not get back the amount that they originally invested. Certain investments of the Company, in particular the unquoted investments, may be less liquid and more difficult to value. In difficult market conditions, the Company may not be able to sell an investment for full value or at all and this could affect performance of the Company.

• Market risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Market Risk: The value of investments can go up and down and an investor may not get back the amount initially invested.

• Operational risk​: Operational processes, including those related to the safekeeping of assets, may fail. This may result in losses to the Company.

• Performance risk: Investment objectives express an intended result but there is no guarantee that such a result will be achieved. Depending on market conditions and the macro economic environment, investment objectives may become more difficult to achieve.

• Private market valuations, and pricing frequency: Valuation of private asset investments is performed less frequently than listed securities and may be performed less frequently than the valuation of the Company itself. In addition, in times of stress it may be difficult to find appropriate prices for these investments and they may be valued on the basis of proxies or estimates. These factors mean that there may be significant changes in the net asset value of the Company which may also affect the price of shares in the Company.

• Share price risk: The price of shares in the Company is determined by market supply and demand, and this may be different to the net asset value of the Company. This means the price may be volatile, meaning the price may go up and down to a greater extent in response to changes in demand.