January 2010
Markets recovered from the uncertainty triggered by the Dubai World default and finished the
year on an optimistic note. This was partly based on the view that the huge monetary stimulus
which has driven the recovery in markets will be sustained well into the new year. Concerns
about how gilt yields will react to the end of quantitative easing and how that might put
pressure on equity valuations were set aside for the time being. The market rally broadened out
during the month to include a number of higher quality companies which had lagged the cyclical
rally. The NAV (ex income) rose by 5.3% to 46.19p while the FT SE All-Share Index total return in
the month was 4.3%. The share price rose marginally from 42.5p to 43p during the month.
The revenue account is looking robust and the portfolio has been restructured to meet the
rebased target for the full year dividend of 1.8p. The share price went ex the first quarterly
dividend of 0.45p on January 6th. The current yield of 4.1% represents a considerable premium
over the prevailing yield on the FTSE All-Share Index which is currently 3.15%.
The outlook for dividends is likely to improve in 2010 after two of the poorest years for
dividends in forty years. We believe that the current portfolio contains a group of companies
which can continue to perform in what we expect to be a muted economic recovery. We retain
a bias towards international companies well insulated from further sterling weakness and will
remain resilient in what may well be another volatile year for markets. No investment changes
were made to the portfolio during December.