Annual General Meeting

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Good afternoon, and thank you, chairman. Lovely to see you all. Welcome. Appreciate the effort in turning up here today, for this AGM. And to those on online as well. So I can speak for about ten minutes. As, as Graeme said, I will be leaving plenty of time for Q&A afterwards.

I'll have a brief recap of the year to the end of October 31st, 2024. Turn to more recent, performance and and what we've been up to, and then on to what's going on in markets today. Which is I'm going to say it's going to be caveated by the fact that whatever I say today is probably going be out of date potentially within hours, but almost certainly within, within weeks. So bear with me. And I'm also hopefully going to convince you why the outlook for the UK equity market in particular, still gives us a lot of hope and optimism, given where we stand today.

So with that, let's hopefully see if this works. I, I don't propose to go through, the funds process or philosophy, given that we've done that and it has not changed, for some time now. But if there are any questions, then please, do ask and come and find me afterwards. And here we go.

Let's see if it's working. Yep. Here we go. Okay, so that's the brief intro. Nothing has changed, nor in terms of the structure of the fund. So I suggest that we go straight into performance. Apologies. It's a bit small, but important table, I guess.

Or the important part of this, this this, page, is the fact that if we look at the 12 month performance, the, to the trust year end on the bottom table, it's been a very strong period of performance in both absolute terms and then reasonably outperforming, the FTSE All Share over the period as well. In terms of that 12 month performance. Look, it was a function of an expectation of easing rates but general optimism about how this post-Covid period has generally improved. And companies generally speaking delivering both growth and attractive shareholder returns and actually the last few months have been more volatile I would say but still a good healthy positive number.

We struggled against that backdrop in terms of relative performance. And some of that is definitely due to in the UK specifically the largest cap names -the FTSE 100- really outperforming everything else. So in that three month period just to put it into context only about 20% of the All Share has been outperforming the benchmark because the market performance has been so dominated by the very largest shares in the benchmark.

So turning over in terms of attribution so again lots of information here I'm very happy to take questions on individual shares in a bit more detail but just recapping some of the largest winners and losers of the portfolio's performance over the last over that 12 month period. Amongst the winners -the largest contributor- which has been up there for some time now in recent years as well is 3i Group which is a private equity investor but its largest asset by some way is a discount retailer in Europe called Action which continues to make significant gains in both in terms of opening new stores but also very strong double digit like for like growth for some time now.

It still remains a substantial holding in the portfolio. We still see a long pathway of growth both within Europe and potentially beyond Europe as well in future. Elsewhere we've also had a strong contribution from our holdings in the banks -the UK banks- both domestic and the likes of Standard Chartered and HSBC have been very strong performers over this 12 month period. In part from self-help -the fact that they finally got their cost basis under control- and some of the historic pressures of lower rates are now washing through the system and so that's setting up for a very profitable outlook for the banks even though there is limited loan growth from here.

On the negatives Rolls-Royce which we do not own continue to smash the ball out of the park. That is a function of a significant turnaround from the current management team which took a business franchise that was basically bust where they were making losses on new engines and hoping to recoup it over the 20 year life of an engine that goes into several aircraft that has turned around and they're making both profits on new engines but also materially improving at the time of wing. And it has been an expensive mistake to have missed out on.

And then elsewhere in terms of what we do own Hays is is the next largest detractor which is a staffing business operating across Europe and Australia and there frankly whilst the economic outlook as I'll touch on is actually pretty healthy in these markets there is a significant lack of confidence both in corporates in terms of their hiring decisions but also candidates moving jobs at this point in time. That said -the valuation- and this is a theme that I'll come back to for UK mid-cap smaller companies basically is very depressed as we sit here today.

And we think there is a lot of opportunity for these businesses to really generate a lot of growth in the years ahead in terms of what we've been up to more recently. We have been moving over the last 12 to 18 months into more of that mid-cap domestically biased part of the market with the expectation that those strong underlying fundamentals which I'll touch on combined with very attractive valuations will generate significant performance in the years ahead. But in the short term -the flight to safety- -the search for liquidity- and some technical selling pressure on UK equities has been a headwind for that part of the market.

The other thing that we have done -and I'll touch on- in a bit more detail later is we've reduced -the international exposure- of the fund which whereby we've only got one international holding today in the portfolio which is Mastercard. Having seen again -the greater opportunity- to invest in UK listed names versus some of -the more expensive international markets- most notably -the US-. This is current positioning or positioning at the end of October.

Happy to take questions on it - but broadly speaking it should hopefully make sense as and when I talk through the market backdrop before I go into we've got a few slides here on, on what we see and what the outlook is. A few sort of overarching observations, which is the last few months have definitely seen an increase in volatility in markets. This is in no, this is in large part due to Trump's election and some of the uncertainty he brings to the political geopolitical landscape. A few US specific elements that he focuses on.

One is immigration, two tariffs and three, the establishment of DOGE, the government efficiency plan led by Elon Musk. Of those three, I think immigration is probably being a damp squib in terms of his ability to actually implement change there. In contrast, tariffs, DOGE, I think are having a larger impact. Tariffs and the broader approach to US isolationism backing away in terms of what's going on with Russia and Ukraine, is all prompting a whole series of knock on dominoes across the, the rest of the world, most notably in Europe, the establishment or the potential establishment of, by Germany, of this defense infrastructure fund, which really materially changes the outlook for fiscal spending in Europe, to what has been over the last decade or so, a very austere approach to fiscal spending, in contrast to the US, where budget deficits have gone out, blown out to 7% of GDP in Germany, for example, they've been very subdued at sub 1%. This completely turns, potentially completely turns this on it head. All of a sudden, US with the light of DOGE in particular, becoming much more fiscally austere, in contrast to Europe becoming fiscally expensive. This does make the rate outlook, and again, just to remind everyone, we do very much focus on the stock specifics. But when you've got these large scale shifts in the macro, you can't ignore them.

But it does mean the rate outlook is is a bit messy. In terms of Europe potentially, there's the Europe and the UK have started that rate cutting cycle. But more recently, some of those potentially fiscal loosening means that the speed of that great decline might come into question, and in contrast, in the US, there are now question marks around the sustainability of that growth, which is quite exceptional given where we were only a few months ago.

And in the UK within that is sort of somewhere between the two. We definitely have a UK, a Bank of England base rate, which is, we would argue, too high for the, where the economy is. So there is potential to cut further. But the speed of that cut will be influenced by the, the sheer amount of volatility and uncertainty out there.

The next few slides, I'm going to touch on a much more UK centric in nature and highlighting again why the UK for us is quite attractive. So I'm going to start with the UK consumer. And why the UK consumer? We think and this is the same for, for corporates as well is in good shape. So we've given you whole series of charts here. But what they were essentially saying top left, top right and bottom left is all pointing to the fact the UK has not gone and spent and the bottom right as well has not gone and spent the excess savings that we got post-Covid that built up during the Covid period. If anything, customers, consumers are sitting on their hands and those excess savings are building up, in aggregate.

And it's the same for corporates. This is in sharp contrast to the US, where a lot of that excess saving from what we can see has been deployed, spent by consumers and by corporates. So that's a good backdrop as far as we're concerned, provided you can get that political certainty in place, which we think we have got. Post, Labour's election, the National Insurance, the National Insurance and tax rises were unhelpful. But we do think that there is the foundations in the UK economy for what can be a pretty robust backdrop.

If we then move on to and this is probably, and I know the Board felt uncomfortable with this slide just because it is almost certainly going to be out of date. Making a statement like this. But what we're trying to show here is the UK is in an interesting role here between the US, Europe and frankly, the rest of the world. We don't have a large trade. A large trade deficit or imbalance with the US, which means we don't expect to be at the forefront of those, tariff negotiations with the US. And the fact that we're not a large goods exporting economy. Again, this is only important in the, clearly there are some big moving pieces geopolitically today. We feel the UK is not going to be at the forefront of that, if anything. And I think Starmer, for what it's worth, is is doing a good job of playing that middle line, between UK, the US and Europe. But anything can change.

If we then move on to one of the particular and this and you can see this in the in the portfolio positioning. We are overweight real estate. And we're specifically overweight in a couple of areas, one of which is central London office. And the reason is very simple. Firstly we see asset valuations which are at multi year lows not far off where we were in the financial crisis, which again given those earlier charts I have just shown you, we feel the economy is a very different place to that. The banking system is in a very different place to that. And then on the bottom right hand side hopefully you can see this. The companies that we are investing in are very much of that prime end where we do see and there's plenty of evidence of rental growth, improving, accelerating, being ahead of, what the what the accountants, are putting into the numbers. And we can just see that continued trend for if you've got good quality space in London, there is a there is a scarcity of it. There hasn't been a huge amount of development in recent years that is of an attractive backdrop. And in particular, if you're then a developer and you're buying if you can see the dotted line down the bottom, if you can buy the right quality properties out there, redevelop them, turn them into that prime scarce property. Then there's a significant uplift there as well. So the double whammy of we're seeing, these businesses seeing good rental growth combined with that development angle. And yet these shares are trading on circa 40% discounts to the net asset value. So just an example. But to give you a flavor of what the opportunity we see, across the UK market is this one in real estate.

This slide that you undoubtedly, or picture or story that you're undoubtedly familiar with. There's nothing new here. It has been a tough, place to be in terms of, the UK since Brexit. I think the next slide is probably just a little bit more interesting, just to give you to break that down in a bit more detail. So what we've done here, we've looked at that eight year performance or so since Brexit and broken it out into its different component parts. And undoubtedly the US, which is the yellow bars, which has generated huge share price returns, well, so total returns. There's definitely been superior growth in the US, and that is a function of their large tech economy, which has done incredibly well. But I don't think and recognizing these are local currency. But the earnings growth in the UK is not is not it's not bad. It's actually pretty good. And it's not that far away from what you're getting in the US and and better than what you're getting in Europe. But the big game changer when it comes to those total returns, is that valuation change. And we've seen it and we've spoken about it last time. The increase in M&A coming into the UK. We've seen UK companies increasing, accelerating share buybacks to try and address this, but it still stands out to us now when we look across the UK market and hence why we've got that lowest allocation to international holdings for some time, we do see that the UK is full of interesting valuation opportunities.

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The final part, the final slide before I open it up to Q&A, it's just to highlight again UK one of the other ways of looking evaluation in the UK is that dividend yield. In contrast, if I’d shown you this chart ten years ago, you could have said, well, there's a huge amount of unsustainable yield in the UK. We would point to between the GFC, the subsequent crises in the mining sector and oil and gas, and then most recently in Covid, I would argue that all the unsustainable dividends were cut, over that period, such that the UK dividend today is a sustainable dividend, is backed by cash flow. It is growing, and that gives us a lot of confidence again, in terms of that total return picture that you've got a circa 4% dividend yield growing, by a few percentage points every year, supported even further by share buybacks. And all of a sudden you're getting quite an attractive total return to start with. So that, in aggregate, is why we remain pretty upbeat. For the UK, the outlook for UK equities, specifically as we've moved down into those more domestic, more mid-cap names, where we think the fundamentals are very strong and the valuations also attractive.