Largest overweight Easyjet also paid out a special dividend and was said to be the largest contributor to positive performance.
“Once again, the company’s position in easyJet was the largest contributor to returns. Easyjet continues to benefit from the improved competitive environment created by the exit of more financially constrained competitors. New initiatives, such as allocated seating, are also helping to boost revenues,” said fund manager Thomas Moore.
Over six months to 31 March 2014, the £165.8m investment company delivered an 11.1% diluted net asset value total return compared with the 4.8% return of the All-Share while its share price rose from 38.p to 418.3p.
Mid caps still powering returns
Mid caps have been given a larger proportion of the overall portfolio, with FTSE Mid 250 companies now making up 46.1% of the fund. This has both driven investment performance upwards while reducing the concentration risk of the top 10 income contributors. This larger allocation to mid caps has helped the fund reach its ranking of third of 21 peers in the UK Equity Income sector, according to the manager.
He said: “During the period under review, we continued to increase the company’s exposure to mid and small cap holdings that offer the prospect of superior dividend and capital growth, at the expense of large cap holdings that offer more limited growth potential.
“This shift in the portfolio has been instrumental in improving the company’s total return, while at the same time diversifying the company’s income sources and thereby reducing its reliance on some of the largest stocks in the market.”
Portfolio changes
He picked up shares in companies such as Synthomer, the manufacturer of aqueous polymers used in medial rubber gloves, Rentokil and TUI Travel.
Moore sold down Aberdeen Asset Management, citing declines across the emerging markets, which could hurt profitability and he also sold shares in packaging business RPC, adding: “Its valuation better reflected the improved outlook and the benefits from recent acquisitions.”
In terms of outlook, Moore said: “Following the broad-based rally in 2013, investors are likely to be increasingly selective as valuations have now recovered to more reasonable levels. Consequently, we expect a period of greater discrimination as the market searches for attractively valued businesses demonstrating sustainable earnings growth.”
