Chelverton UK Dividend Trust PLC

Global equity markets continue to be volatile, still driven by the ever-changing narrative about the situation in the Gulf and short-term shifts in investor sentiment towards AI equity valuations. Interestingly in the last month the US treasury's support of the falling yen, whilst flying somewhat under the radar, did add to the general feeling of macro uncertainty amongst some commentators. UK market data looked better in June with signs of improving confidence though from a low base, and the inflation rate also surprising to the downside. We have always pointed to cash returns as a good long-term arbiter of equity valuations and the sheer scale of current and forecast share buybacks, takeovers and dividend payments across the UK market represent in our view tangible evidence of its relative attraction. Whilst the 'bad' news is already known and probably reflected in prices the major unknown at the moment in the UK is the first budget under the new prime minister. There have already been hints of further tax increases in the next budget and a number of spending pledges with no corresponding indications as to where the money to pay for them is to come from. This has inevitably led to endless speculation in the press as to the magnitude of impending tax increases and where they will fall. Unfortunately, we have been here before and the speculation serves to undermine confidence. In the meantime though we expect the return of cash from UK PLC to its shareholders through dividends, takeovers and buybacks will continue apace. At the portfolio level the improved sentiment towards UK SMID in the month resulted in some large share price movements. Victrex in particular bounced in July as its trading statement pointed to continued positive market momentum, in-line with a global PMI picture which is slowly improving. Hilton Food Group's share price improved having announced it has reached an agreement to sell its Vegan and Vegetarian business, which has been a drag on earnings and RWS recovered some of its share price losses from June as sentiment stabilised. On the downside, Vesuvius was weak as operational issues prevented the company from taking advantage of more favourable market demand, Polar Capital shares fell on the readthrough from the fall in US technology stocks and Spectra Systems gave up some of the gains it made in May and June. On the trading front we took some profits in Polar Capital, prior to the share price fall and started new positions in Kainos Group and 4mprint.