Chelverton UK Dividend Trust PLC

It is interesting to note that the positive performance of the fund in the last month happened against a background of rising UK gilt yields, which remain the highest in the G7. The experience of the last few years is that our investible universe should struggle in 'risk off' markets, which are commonly defined by investors according to the direction of travel of gilt yields. There also appears to be further headwinds on the horizon with respect to our portfolio of UK small and mid-caps in the form of the 'macro', with continued volatility in the oil price and uncertainty over the budget on 28th October given the diminished fiscal headroom. We have noted on many occasions before that the companies that we invest in are able in a lot of instances to adapt quite quickly to shifts in their operating environment. We saw this in company meetings in the aftermath of the national insurance increases which became 'yesterday's news' quite quickly as company Boards just got on with their day jobs of managing their assets on behalf of all stakeholders, adapting to the new circumstances. Small and mid-caps can have the flexibility to move quickly to both threats and opportunities, and we would contend that we own stocks that are better businesses now than they were a few years ago, despite the relative lack of interest in our sector. Perhaps it is this that has started to drive recent positive price moves. At portfolio level these price moves were particularly evident in RWS and Kainos Group. Kainos bounced on the back of a strong trading statement and upgraded guidance while RWS shares responded positively to the announcement of an earnings enhancing bolt-on acquisition. Chesnara also contributed positively on the back of solid interim Results and its inclusion in a major equity index. On the downside, Gattaca lost some of the gains it made over recent months, as they announced an in-line update in August and FOM Group similarly lost its gains following the release of in-line interim results. On the trading front, we took the opportunity to start a position in pensions consultancy XPS Pensions and continued to build our position in Nichols. We reduced our position in Hollywood Bowl and exited Johnson Matthey.