Latest trust commentary

Summary

The FTSE All-Share has delivered a strong performance so far in 2025, outperforming both the S&P 500 and MSCI World indices by over 6% in sterling terms over the first nine months of the year. Despite this outperformance valuations across the UK market remain attractive. The market continues to trade at roughly a 20% discount to both long-term averages and global peers, with particularly wide dispersion between the most and least expensive stocks.

Against this backdrop, our relative performance weakened in the third quarter of the year with Fund’s NAV performance of 5.3% behind the FTSE All Share TR return of 6.9%. As in the first quarter, our exposure to small and mid-cap companies and to cyclical areas of the market, those whose performance is more closely tied to the economic cycle, proved a headwind. Heightened focus on fiscal and political risks, alongside cautious trading updates from several UK corporates, negatively impacted domestically oriented and consumer-related businesses. In contrast, the index was led higher by strong gains from large-cap companies, resulting in our portfolio lagging the broader market.

Markets

The FTSE All-Share has been one of the world’s strongest performing equity indices so far in 2025, outperforming both the S&P 500 and MSCI World by more than 6% in sterling terms year to date. This relative strength reflects resilient corporate earnings at the top of the index and attractive valuations.

Within the UK market, the shares of mining companies rose on the back of merger and acquisition activity, while banks also performed strongly. The largest constituents of the FTSE 100 once again significantly outperformed small and mid-cap peers. In contrast, domestic and consumer-facing companies faced pressure as investors focused more on fiscal and political risk, and as a number of UK corporates issued cautious trading statements highlighting weaker end markets.

The Bank of England reduced the base rate by 25 basis points to 4% during the quarter. However, with inflation remaining persistent, the scope for further near-term policy easing appears limited. The UK’s fiscal position has also come under greater scrutiny ahead of the November budget. The Labour government’s commitment to maintaining fiscal credibility under its self-imposed rules — including the requirement that public sector net debt must be falling as a share of GDP by the end of the forecast period (currently 2029–30) — may restrict flexibility. Recent downgrades to economic growth forecasts further narrow the chancellor’s headroom against these targets, presenting a potential policy challenge in the months ahead.

Performance

In the third quarter of the year Fund’s NAV performance of 5.3% was behind the FTSE All Share TR return of 6.9%. Our exposure to small and mid-cap and cyclical areas was detrimental, similar to the first quarter of 2025. Amongst consumer-related businesses housebuilder Taylor Wimpey, retailer and veterinary business Pets at Home and luxury goods group Burberry were notable detractors. While consumer and corporate balance sheets remain generally healthy, lingering supply chain pressures — partly linked to US tariffs — have added uncertainty.

The portfolio’s overweight position in mid and small-cap companies and corresponding underweight in large caps detracted, as the FTSE 100 Index delivered more than twice the return of the FTSE 250 ex Investment Trusts Index over the period. This reflects a valuation de-rating, which we have discussed previously, with markets applying lower earnings multiples to smaller companies. Sustained outflows from UK equities have exacerbated this, placing downward pressure particularly on mid and small caps that attract less international attention. Renewed merger and acquisition activity and a growing number of companies initiating share buybacks highlight the valuation opportunity and may help narrow this discount over time.

Elsewhere, medical technology business Convatec underperformed despite strong strategic execution, as investor sentiment was affected by potential US regulatory scrutiny and health concerns relating to its CEO. The absence of aerospace and defence Rolls-Royce within the portfolio also detracted. Strong order books and optimism around its power systems division drove its share price higher.

Positive contributors included construction and infrastructure group Balfour Beatty, which is benefiting from contract renegotiations that reduced risk and improved earnings visibility. Disciplined capital allocation, a progressive dividend policy, and substantial share buybacks — totalling over 20% of shares in the last 4 years — have strengthened its financial position and supported performance. Within financials, UK-listed bank Standard Chartered, private assets manager ICG, insurer Prudential and Italian bank Intesa San Paolo also added value.

Outlook

While fiscal pressures, persistent inflation, and geopolitical uncertainty continue to shape the global environment, markets have shown resilience as investors adapt to evolving trade and policy dynamics. Inflation has moderated but remains above target levels, limiting central banks’ scope for rapid policy easing. These factors have contributed to intermittent volatility, yet UK equities have continued to deliver strong absolute returns and robust relative performance. In sterling terms, the FTSE All-Share has outperformed major global indices year to date, challenging the perception that the UK market remains a structural underperformer.

Valuations across the UK market remain attractive, with equities trading at roughly a 20% discount to both long-term averages and global peers. The unusually wide dispersion between the most and least expensive stocks provides a rich opportunity set for active managers like us to identify mispriced businesses with compelling upside potential. Increasingly, global investors are reassessing concentrated exposure to the US market and recognising the merits of diversification. The UK offers a combination of value, income and quality that compare favourably with global alternatives. As confidence in corporate earnings and policy stability improves, the UK equity market is well placed to continue delivering competitive long-term returns.

While the forthcoming UK Budget in November is likely to be a key near-term event for investors, with implications for fiscal credibility and market confidence, our focus remains on the long-term prospects for our portfolio holdings. Regardless of the policy 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.