Siddarth Chand Lall’s UK Income Market Update

For Professional Clients only. Not for distribution to or to be relied upon by Retail Clients.

“Our view is that deep value can be found in pockets of the UK market, despite the uncertain backdrop.”

Siddarth Chand Lall

Siddarth Chand Lall is the Investment Manager of the Marlborough Multi Cap Income Fund.

Concerns over slowing global growth have seen ‘safe haven’ assets perform well over the past six months. Such is the demand for these assets that around 30% of the bonds issued by governments and companies worldwide, almost £14 trillion
worth1, are now trading on negative yields.

This has made gold, which offers no income, look relatively attractive as a store of value. But the price has already had a strong run this year, up 17.5%2 at the time of writing, and some investors will be wary about buying at these levels.

Meanwhile, as a result of Brexit uncertainty, UK equities now trade at a significant discount to both historic averages and comparable developed markets.

This is particularly true of smaller companies, which are often viewed as more domestically focused. However, many UK orientated companies continue to trade well and grow their dividends. Examples include hard landscaping products
manufacturer Marshalls and self storage company Big Yellow.

The significant devaluation of sterling has provided a boost for global FTSE 100 companies with a high proportion of overseas earnings. However, there are plenty of strong, international businesses further down the market cap spectrum, where valuations are more attractive.One example is Bloomsbury Publishing, which generates revenues in the US, Europe, Australia and Asia.

Given the combination of low valuations and sterling weakness, UK companies have increasingly become targets for merger & acquisition activity. Acquirers are foreign companies and also cash-rich private equity houses. Our fund has seen a number of takeover bids across various sectors since the referendum, with the pace accelerating recently. The list includes Manx Telecom, RPC and Dairy Crest,
with Sanderson and BCA being the most recent. This can push up valuations on other stocks in the same sectors that may be trading on discounted multiples. It reinforces our view that deep value can be found in pockets of the UK market, despite the uncertain backdrop.

We continue to focus on cash generative companies with strong balance sheets paying sustainable dividends. Given the low returns available from bonds, we see a diversified portfolio of such equities, yielding more than 4.5%3, as an attractive proposition for those seeking steady income.

Siddarth Chand Lall is the Investment Manager of the Marlborough Multi Cap Income Fund, which holds some or all of the stocks mentioned. The views expressed are for general information purposes only and should not be construed as investment advice.

Source 1: Financial Times 09/09/19, FTfm supplement, P.6
Source 2: Bloomberg 09/09/19
Source 3: Marlborough Fund Managers website, yield on Marlborough Multi Cap Income Fund’s P class income units is 4.92% as at 12/09/19

Risk Warnings

Capital is at risk. The following is a summary only of some key items in the Prospectus and more details can be found in the Prospectuses. Investors in Protected Cell Company (PCC) must have the financial expertise and willingness to accept the risks inherent in this investment.
Past performance is not a reliable indicator of current or future performance; it may not be repeated and should not be the sole factor considered when selecting funds. It should be appreciated that the value of Shares is not guaranteed and may go down as well as up and that investors may not receive, on redemption of their Shares, the amount that they originally invested. Investment in the Company should only be undertaken as part of a diversified investment portfolio. Investment in the Shares should be viewed as a medium to long term investment. Shares may not be redeemed other than on any Dealing Day. There will not be any secondary market in the shares of the Company. The individual cells of the fund act as feeder funds to various UK-authorised collective investment schemes, which may invest in smaller companies, and those listed on the alternative investment market (AIM), which carry a higher degree of risk than larger companies. The shares of smaller
companies may be less liquid and their performance more volatile over shorter time periods. Data is as at 09/09/19.

Regulatory Information

The Cells referred to are a cell of Marlborough International Fund PCC Limited (the ‘Company’), a protected cell company incorporated in Guernsey and authorised as a Class B Collective Investment Scheme under the terms of the Protection of Investors (Bailiwick of Guernsey) law, 1987, as amended.
Investment may only be made on the basis of the current Prospectus, this can be found on the website
Marlborough International Management Limited is incorporated in Guernsey. Registration No. Regulated by the Guernsey Financial Services Commission. It is not protected by any investor compensation scheme.
This document may contain FTSE data. Source: FTSE International Limited (“FTSE”) FTSE 2019. “FTSE” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.