Marlborough Blog

PRESS RELEASE – 12th November 2018 Richard Goodall joins Marlborough Group as Director of Strategy & Business Development

The Marlborough Group has appointed Richard Goodall to its board as Director of Strategy and Business Development to help capitalise on market opportunities and drive continued growth.

Richard, who has over 30 years’ financial services experience, joins from Parmenion, where he was Distribution and Marketing Director. Previously he held senior roles with SEI and Ascentric.

The Marlborough Group includes UK-authorised and offshore fund management companies; an investment management business providing discretionary fund management services; and a fund services business, providing Authorised Corporate Director (ACD) and fund hosting services. Wayne Green, Director of Marlborough Group, said: “We are delighted that Richard has been able to join us. His role will be to help us maintain the strong growth trajectory of the Marlborough Group, which has almost tripled assets under management over the past five years to more than £11.5 billion.

“He will do that by using his extensive market knowledge and experience to further expand the range and distribution of our products and services. In particular, he will focus on the strategic opportunities being created through shifting market dynamics and aligning these to support further growth across the Marlborough Group.”

Richard said: “Each of the companies in the Marlborough Group already has the key fundamentals in place: a pervasive ‘client-first’ culture, a commitment to supporting positive investor outcomes through the provision of first-class products and services and, finally, a high level of expertise.

“This is what attracted me and has driven growth to date, and my role will be to ensure that our momentum continues by helping to develop our offerings across the group and by exploring new opportunities.”

ENDS

For further information, please contact:

Malcolm Jones
Bulletin PR
malcolm.jones@bulletin.co.uk
0115 907 8412
07984 700030

Nathan Glynn
Associate Director – Marketing
Marlborough Fund Managers

nathan.glynn@www.marlboroughfunds.com
01204 545592

The Marlborough Group, which has more than £11.5 billion of assets under management, includes Marlborough Fund Managers, Marlborough International, Marlborough Investment Management and Investment Fund Services Limited (IFSL).

Marlborough Fund Managers was established in 1986 and offers a range of 19 funds investing in: UK Equities, UK Fixed Interest, Global Fixed Interest, Mixed Assets, International Equities, Funds of Funds and Funds of Exchange Traded Funds. Marlborough Fund Managers is authorised and regulated by the Financial Conduct Authority. www.www.marlboroughfunds.com

Marlborough International provides offshore access to a range of single strategy and risk-graded funds of funds. Marlborough International is regulated by the Guernsey Financial Services Commission. www.marlboroughinternational.gg

Marlborough Investment Management has been managing investments since 1985. The company offers a full discretionary management service for IFA clients together with discretionary management services for high net worth individuals, charities, pension funds and trusts. Marlborough Investment Management is authorised and regulated by the Financial Conduct Authority. www.marlboroughinvests.com

Investment Fund Services Limited (IFSL) acts as an Authorised Corporate Director (ACD) providing fund hosting services for independent financial advisers, wealth managers and other regulated organisations in the financial services sector. IFSL is authorised and regulated by the Financial Conduct Authority. www.ifslfunds.com

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By Richard Hallett, Manager of the Marlborough UK Multi-Cap Growth Fund. The opinions expressed are as of October 2018 and may change as subsequent conditions vary.

With the final shape of Brexit still impossible to predict, uncertainty about the political direction the country will take and many High Street retailers limping along in a precarious state, there are clear macroeconomic challenges for UK PLC.

On a more positive note though, plenty of UK businesses are continuing to achieve strong growth. In many cases, these are companies benefiting from powerful trends changing the way we do business, spend our money or lead our lives.

Where these long-term structural trends are channelling money into a particular business area, the leading companies in that field should benefit from a strong tailwind, providing the potential for robust growth irrespective of wider macroeconomic conditions.

Such businesses can be termed ‘secular growth’ companies and they can be found across the full breadth of the market cap spectrum.

The structural growth trends they are benefiting from can range from cutting-edge technology through to less exciting, but nonetheless powerful changes.

Increasing global regulation

One example of the latter is increasing regulation. This is a global trend affecting virtually every area of life, with new rules, restrictions and safeguards being introduced at local, national and international levels. New regulations relate to everything from food hygiene and pest control to building safety.

One beneficiary is FTSE 100-listed Halma, a group specialising in health and safety products. Its almost 50 subsidiary companies make products ranging from fire detection systems and emergency phones for lifts to corrosion detectors to monitor the structural integrity of bridges.

The company believes increasing global regulation should drive continuing growth in demand for its products, protect margins and provide a degree of security of income in difficult economic conditions.

Halma is acquisitive, using strong cashflows to buy up smaller businesses and in June the group reported adjusted pre-tax profits for the year up 10% to £214m.

Intertek, another FTSE 100 company, is also benefiting from the trend for greater regulation. It provides testing, inspection and certification for products in a broad range of industries globally.

It is a multi-faceted business – testing goods and auditing services, checking everything from the quality of oil coming out of the ground to the effectiveness of cyber-security measures.

Intertek is a consolidator, making earnings-enhancing acquisitions by buying up smaller businesses, reaping the benefits of cost synergies and selling new services to its global customer base.

In August, the company announced half-year profits before tax of £214m, up 7.5%, on a constant currency rate basis, compared with the first six months of 2017.

Growing healthcare spending

The growth in healthcare spending is another long-term structural trend. In the US, for example, health spending was estimated to be up by 4.6% to nearly $3.5 trn in 2017 and is projected to rise another 5.3% this year. This is being driven by an ageing population, greater disposable income and higher prices being charged for medical products.

AIM-listed Craneware is a business well positioned to reap the benefits of this growing market. The company provides software for the US healthcare industry and is the largest player in its field. With a potential market of more than 500 US healthcare companies, Craneware already counts around a third of them as customers.

Its software helps hospitals and other providers monitor their stocks of medicines, manage payments from health insurers and patients and ensure they comply with the pricing transparency required by regulators.

Craneware’s customers sign multi-year contracts giving good visibility of earnings and the company is using its strong and sticky cashflow to invest in developing new products, particularly cloud-based offerings.

Pre-tax profits for the first half of this year were £6.6m, up 16% on the same period last year.

Cyber security

As companies do more and more business online, so the risks increase – not just of fraud, but also of things like falling foul of money launderers.

GB Group, which is listed on AIM, is a specialist in helping organisations to quickly check the identity and location of individuals online to avoid fraud and prevent money laundering – and to prove they have done this for compliance purposes.

Increasingly GB Group is globalising its business, selling large-scale multi-year contracts to multi-national players in financial services and other sectors. Adjusted operating profit was up 55% to £26m for the year to 31st March 2018.

Artificial intelligence

Blue Prism, another AIM company, is a leading player in the field of robotic process automation (RPA), where software ‘robots’ perform mundane back-office administrative tasks such as transferring data between different computer applications.

A recently published Global RPA Market Insights report forecasts that the worldwide RPA market, which was valued at £198m last year, will grow to £7bn by 2025, an annualised growth rate of just over 60%.

While Blue Prism is not yet generating a profit, this is a business with very strong growth potential. It is one of the top three global companies in this rapidly expanding sector and a trusted provider to financial services giants including BNY Mellon, Aegon, Commerzbank and Zurich.

Exactly where the Brexit process will take us remains highly uncertain. However, companies benefiting from long-term structural trends have the potential to continue to grow without relying on a positive macroeconomic backdrop. In an unpredictable world that presents an attractive opportunity for investors.

Risk Warnings

Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Our funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. Tax treatment depends on individual circumstances and may change in the future. The fund will be exposed to stock markets. Stock market prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events. The fund invests mainly in the UK, therefore, investments will be vulnerable to sentiment in that market, which may strongly affect the value of the fund.

Richard Hallett is Manager of the Marlborough UK Multi-Cap Growth fund, which holds some or all of the stocks mentioned. The views expressed are his own and should not be construed as investment advice.

A version of this article appeared in Investment Week in October 2018.

Regulatory Information

This material is for distribution to professional clients only and should not be distributed to or relied upon by any other persons. It’s provided for general information purposes only and is not personal advice to anyone to invest in any fund or product. The Key Investor Information Documents and the Prospectuses for all funds are available, in English, free of charge and can be obtained directly using the contact details in this document. They can also be downloaded from www.marlboroughfunds.com. An investor must always read these before investing. Information taken from trade and other sources is believed to be reliable, although we don’t represent this as accurate or complete and it shouldn’t be relied upon as such. Calls may be recorded for training and monitoring purposes. Issued by Marlborough Fund Managers Ltd, authorised and regulated by the Financial Conduct Authority (reference number 141660). Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Registered in England No. 02061177. This presentation may contain FTSE data. Source: FTSE International Limited (“FTSE”) FTSE 2018. “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.

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By Richard Hallett, Manager of the Marlborough UK Multi-Cap Growth Fund. The opinions expressed are as of October 2018 and may change as subsequent conditions vary. 

With the final shape of Brexit still impossible to predict, uncertainty about the political direction the country will take and many High Street retailers limping along in a precarious state, there are clear macroeconomic challenges for UK PLC.

On a more positive note though, plenty of UK businesses are continuing to achieve strong growth. In many cases, these are companies benefiting from powerful trends changing the way we do business, spend our money or lead our lives.

Where these long-term structural trends are channelling money into a particular business area, the leading companies in that field should benefit from a strong tailwind, providing the potential for robust growth irrespective of wider macroeconomic conditions.

Such businesses can be termed ‘secular growth’ companies and they can be found across the full breadth of the market cap spectrum.

The structural growth trends they are benefiting from can range from cutting-edge technology through to less exciting, but nonetheless powerful changes.

Increasing global regulation

One example of the latter is increasing regulation. This is a global trend affecting virtually every area of life, with new rules, restrictions and safeguards being introduced at local, national and international levels. New regulations relate to everything from food hygiene and pest control to building safety.

One beneficiary is FTSE 100-listed Halma, a group specialising in health and safety products. Its almost 50 subsidiary companies make products ranging from fire detection systems and emergency phones for lifts to corrosion detectors to monitor the structural integrity of bridges.

The company believes increasing global regulation should drive continuing growth in demand for its products, protect margins and provide a degree of security of income in difficult economic conditions.

Halma is acquisitive, using strong cashflows to buy up smaller businesses and in June the group reported adjusted pre-tax profits for the year up 10% to £214m.

Intertek, another FTSE 100 company, is also benefiting from the trend for greater regulation. It provides testing, inspection and certification for products in a broad range of industries globally.

It is a multi-faceted business – testing goods and auditing services, checking everything from the quality of oil coming out of the ground to the effectiveness of cyber-security measures.

Intertek is a consolidator, making earnings-enhancing acquisitions by buying up smaller businesses, reaping the benefits of cost synergies and selling new services to its global customer base.

In August, the company announced half-year profits before tax of £214m, up 7.5%, on a constant currency rate basis, compared with the first six months of 2017.

Growing healthcare spending

The growth in healthcare spending is another long-term structural trend. In the US, for example, health spending was estimated to be up by 4.6% to nearly $3.5 trn in 2017 and is projected to rise another 5.3% this year. This is being driven by an ageing population, greater disposable income and higher prices being charged for medical products.

AIM-listed Craneware is a business well positioned to reap the benefits of this growing market. The company provides software for the US healthcare industry and is the largest player in its field. With a potential market of more than 500 US healthcare companies, Craneware already counts around a third of them as customers.

Its software helps hospitals and other providers monitor their stocks of medicines, manage payments from health insurers and patients and ensure they comply with the pricing transparency required by regulators.

Craneware’s customers sign multi-year contracts giving good visibility of earnings and the company is using its strong cashflow to invest in developing new products, particularly cloud-based offerings.

Pre-tax profits for the first half of this year were £6.6m, up 16% on the same period last year.

Cyber security

As companies do more and more business online, so the risks increase – not just of fraud, but also of things like falling foul of money launderers.

GB Group, which is listed on AIM, is a specialist in helping organisations to quickly check the identity and location of individuals online to avoid fraud and prevent money laundering – and to prove they have done this for compliance purposes.

Increasingly GB Group is globalising its business, selling large-scale multi-year contracts to multi-national players in financial services and other sectors. Adjusted operating profit was up 55% to £26m for the year to 31st March 2018.

Artificial intelligence

Blue Prism, another AIM company, is a leading player in the field of robotic process automation (RPA), where software ‘robots’ perform mundane back-office administrative tasks such as transferring data between different computer applications.

A recently published Global RPA Market Insights report forecasts that the worldwide RPA market, which was valued at £198m last year, will grow to £7bn by 2025, an annualised growth rate of just over 60%.

While Blue Prism is not yet generating a profit, this is a business with very strong growth potential. It is one of the top three global companies in this rapidly expanding sector and a trusted provider to financial services giants including BNY Mellon, Aegon, Commerzbank and Zurich.

Exactly where the Brexit process will take us remains highly uncertain. However, companies benefiting from long-term structural trends have the potential to continue to grow without relying on a positive macroeconomic backdrop. In an unpredictable world that presents an attractive opportunity for investors.

Risk Warnings

Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. Our funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. Tax treatment depends on individual circumstances and may change in the future. The fund will be exposed to stock markets. Stock market prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events. The fund invests mainly in the UK, therefore, investments will be vulnerable to sentiment in that market, which may strongly affect the value of the fund.

Richard Hallett is Manager of the Marlborough UK Multi-Cap Growth fund, which holds some or all of the stocks mentioned. The views expressed are his own and should not be construed as investment advice.

A version of this article appeared in Investment Week in October 2018.

Regulatory Information

The Key Investor Information Documents and the Prospectuses for all funds are available, in English, free of charge and can be obtained directly using the contact details in this document. They can also be downloaded from www.marlboroughfunds.com. An investor must always read these before investing. Information taken from trade and other sources is believed to be reliable, although we don’t represent this as accurate or complete and it shouldn’t be relied upon as such. Calls may be recorded for training and monitoring purposes. Issued by Marlborough Fund Managers Ltd, authorised and regulated by the Financial Conduct Authority (reference number 141660). Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Registered in England No. 02061177. This presentation may contain FTSE data. Source: FTSE International Limited (“FTSE”) FTSE 2018. “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.

Download PDF

A UK equity income fund with the freedom to invest across the market cap spectrum

Siddarth Chand Lall, Manager of the Marlborough Multi Cap Income Fund, explains why UK small caps have outperformed large caps since the EU referendum, why he’s seeing opportunities in utilities and why the environment for UK equities is benign.

A distinctive feature of the fund is its bias to smaller companies and they’ve outperformed their larger counterparts since the Brexit vote. What has driven this?

“The outperformance of UK small caps since the Brexit vote demonstrates the diversity of the companies operating at this end of the market cap spectrum.

“There’s a stereotype about small caps being dependent on the domestic economy. In reality though many have an international focus and have been benefiting from stronger global growth or tapping into new and fast-growing markets, so they’re performing well despite the shadow Brexit uncertainty is casting over the UK economy.

“A good example is hotel company PPHE, which operates the Park Plaza chain. Some might take the view that it’s a consumer-facing business, with a lot of hotels in the UK, and so is reliant on the domestic economy, and, indeed, it was hit after the referendum vote.

“It has rebounded strongly though, with the share price doubling over the past two years to £14.60 at the time of writing. Many of its UK hotels are trophy assets in London, so it benefited when weaker sterling increased the number of visiting tourists. It also has a growing portfolio of hotels in continental Europe.

“Another example is Midwich, which is a distributor of leading audio-visual equipment brands in markets including the UK, Germany and France. It combines technical expertise with strong long-term customer relationships and represents a number of high-end brands, including Harman Kardon, which provides audio equipment for car manufacturers including Mercedes-Benz. It has achieved strong growth in profits and the share price has risen from £2.45 at the time of the referendum to more than £6.50 at the time of writing.”

“There’s uncertainty about Brexit and where trade tariffs will lead us, of course, but overall I’d characterise the environment for UK equities as benign.”

Are there are any particular sectors where you’re seeing opportunities at the moment?

“We believe there are a number of good utility companies that have been unfairly punished or ignored. There was a sharp sell-off of the sector in the first quarter, prompted by political criticism and concern about the impact of tighter regulation.

“Labour also continues to talk about renationalisation – despite an estimated price tag of up to £90 billion, which in the eyes of many commentators makes that a highly unlikely scenario.

“Most companies have now seen their share price regain some of the ground lost, but generally they still remain at a discount of around 15 per cent to the sector average for global utilities.

“We take the view that many utility companies are steadily delivering for their customers, at the expense of booking larger profits, while also investing heavily each year in the UK’s infrastructure.

“We hold Severn Trent, which is a strong and profitable business, but also one that has been rewarded by the regulator, Ofwat, for meeting or exceeding targets for service delivery. In May the company reported annual profits up 4% and announced a 6.2% increase in dividends for the year. The forecast dividend yield is now 4.7% (at the time of writing).

“We also like Pennon Group, owner of regulated utility business South West Water. It’s another utility business generating attractive profits, but also delivering for its customers. The forecast yield is 5.5%.

“Electricity and gas supplier SSE has complex challenges to manage. It plans to split off its household energy business and also faces pressure from government plans to cap standard variable tariffs, possibly as early as this winter.

“We believe though that SSE is a well-run business, which is increasingly doing the right thing for customers, and that it has significant growth potential. The forecast yield is 7.1%.

“Overall, our view is that sentiment will eventually turn positive on the utility sector as understanding grows that broad generalisations about inefficiency do not hold true for every company.”

Have you identified any new investment themes emerging?

“A number of companies we hold are benefiting from the growth of electric vehicle technology. These are businesses where we’ve already identified a strong investment case and the electric vehicle technology is an additional bonus.

“For example, engineering consultancy Ricardo has been at the forefont of engine design for over 100 years, but given the move away from the internal combustion engine, it could have found itself trapped in a dying industry.

“Instead Ricardo’s order book hit a record £302 million in the half year to the end of last December, with work on electric and hybrid vehicles growing rapidly and now accounting for 24 per cent of business. The forecast yield is a relatively modest 2.2%, but we think this is a company with great intellectual property and strong growth prospects.

“Mining company Central Asia Metals, which has the capacity to produce up to 14,000 tonnes of copper a year, is also well placed to benefit from significantly increasing global demand for electric vehicles – a single electric car can have up to six kilometres of copper wiring.

“We like the focus on low-cost production of high-quality base metals and the company’s commitment to paying attractive dividends. The forecast yield is 6.1%.

“Mining royalties business Anglo Pacific Group is another business repositioning itself to benefit from the growing number of electric vehicles. Part of its strategy is to focus on commodities such as nickel, which is used to lengthen battery life in electric cars. The stock’s forecast yield is 4.9%.”

How would you summarise the outlook for equities?

“There’s uncertainty about Brexit and where Donald Trump’s trade tariffs will lead us, of course, but overall I’d characterise the environment for UK equities as benign.

“Depending on the economic data that emerges, we may see two interest rates rises over the next 12 months to combat inflationary pressures. But any increases are likely to be modest and we’ll still be in a low interest rate environment. That benefits companies borrowing to invest in growth and also supports consumer spending.

“In terms of tax on profits, companies in the UK are paying 19% Corporation Tax, compared with 28% in 2010, and the Government has announced that this will be cut by a further two percentage points to 17% in April 2020. So, again, that’s supportive for businesses.

“In currency terms, sterling remains weaker against the US dollar as a result of the Brexit vote and that’s helping exporters by making their prices more competitive for overseas buyers. At the same time, the pound has regained some of the lost ground, which means we’re not feeling the squeeze on import costs to the same extent that we were.

“So, overall, I’m positive about the outlook. We’re continuing to identify attractive opportunities at company level, while at the macro level I’m reassured that we have able policymakers in the Bank of England and that they’ll do what’s right for the economy.”

Siddarth Chand Lall is Manager of the Marlborough Multi Cap Income Fund, which holds some or all of the stocks mentioned. The views expressed are his own and should not be taken as investment advice.

Risk Warning

The past is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. The value of an investment and the income from it is not guaranteed and will vary. Values can fall as well as rise, and there’s no guarantee an investor will make a profit. They may get back significantly less than they invest. The Fund invests in smaller companies which carry a higher degree of risk than larger companies. The shares of smaller companies may be less liquid and their performance more volatile, especially over shorter time periods. The Fund invests mainly in the UK. Therefore it may be more vulnerable to market sentiment in that country. Marlborough funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. You are required to read the Key Investor Information Document (KIID) before making an investment.

Regulatory Information

The KIID and prospectus for all funds are available free of charge at www.www.marlboroughfunds.com or by calling 0808 145 2500. This document is provided for information purposes only and should not be interpreted as investment advice. The information contained herein has been prepared from sources believed reliable but is not guaranteed and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or need of individual investors. Issued by Marlborough Fund Managers Ltd, authorised and regulated by the Financial Conduct Authority. Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Registered in England No. 02061177. Please note that for your protection telephone calls may be recorded.

Download PDF

A UK equity income fund with the freedom to invest across the market cap spectrum

Siddarth Chand Lall, Manager of the Marlborough Multi Cap Income Fund, explains why UK small caps have outperformed large caps since the EU referendum, why he’s seeing opportunities in utilities and why the environment for UK equities is benign.

A distinctive feature of the fund is its bias to smaller companies and they’ve outperformed their larger counterparts since the Brexit vote. What has driven this?

“The outperformance of UK small caps since the Brexit vote demonstrates the diversity of the companies operating at this end of the market cap spectrum.

“There’s a stereotype about small caps being dependent on the domestic economy. In reality though many have an international focus and have been benefiting from stronger global growth or tapping into new and fast-growing markets, so they’re performing well despite the shadow Brexit uncertainty is casting over the UK economy.

“A good example is hotel company PPHE, which operates the Park Plaza chain. Some might take the view that it’s a consumer-facing business, with a lot of hotels in the UK, and so is reliant on the domestic economy, and, indeed, it was hit after the referendum vote.

“It has rebounded strongly though, with the share price doubling over the past two years to £14.60 at the time of writing. Many of its UK hotels are trophy assets in London, so it benefited when weaker sterling increased the number of visiting tourists. It also has a growing portfolio of hotels in continental Europe.

“Another example is Midwich, which is a distributor of leading audio-visual equipment brands in markets including the UK, Germany and France. It combines technical expertise with strong long-term customer relationships and represents a number of high-end brands, including Harman Kardon, which provides audio equipment for car manufacturers including Mercedes-Benz. It has achieved strong growth in profits and the share price has risen from £2.45 at the time of the referendum to more than £6.50 at the time of writing.”

Are there are any particular sectors where you’re seeing opportunities at the moment?

“We believe there are a number of good utility companies that have been unfairly punished or ignored. There was a sharp sell-off of the sector in the first quarter, prompted by political criticism and concern about the impact of tighter regulation.

“Labour also continues to talk about renationalisation – despite an estimated price tag of up to £90 billion, which in the eyes of many commentators makes that a highly unlikely scenario.

“Most companies have now seen their share price regain some of the ground lost, but generally they still remain at a discount of around 15 per cent to the sector average for global utilities.

“We take the view that many utility companies are steadily delivering for their customers, at the expense of booking larger profits, while also investing heavily each year in the UK’s infrastructure.

“We hold Severn Trent, which is a strong and profitable business, but also one that has been rewarded by the regulator, Ofwat, for meeting or exceeding targets for service delivery. In May the company reported annual profits up 4% and announced a 6.2% increase in dividends for the year. The forecast dividend yield is now 4.7% (at the time of writing).

“We also like Pennon Group, owner of regulated utility business South West Water. It’s another utility business generating attractive profits, but also delivering for its customers. The forecast yield is 5.5%.

“Electricity and gas supplier SSE has complex challenges to manage. It plans to split off its household energy business and also faces pressure from government plans to cap standard variable tariffs, possibly as early as this winter.

“We believe though that SSE is a well-run business, which is increasingly doing the right thing for customers, and that it has significant growth potential. The forecast yield is 7.1%.

“Overall, our view is that sentiment will eventually turn positive on the utility sector as understanding grows that broad generalisations about inefficiency do not hold true for every company.”

Have you identified any new investment themes emerging?

“A number of companies we hold are benefiting from the growth of electric vehicle technology. These are businesses where we’ve already identified a strong investment case and the electric vehicle technology is an additional bonus.

“For example, engineering consultancy Ricardo has been at the forefont of engine design for over 100 years, but given the move away from the internal combustion engine, it could have found itself trapped in a dying industry.

“Instead Ricardo’s order book hit a record £302 million in the half year to the end of last December, with work on electric and hybrid vehicles growing rapidly and now accounting for 24 per cent of business. The forecast yield is a relatively modest 2.2%, but we think this is a company with great intellectual property and strong growth prospects.

“Mining company Central Asia Metals, which has the capacity to produce up to 14,000 tonnes of copper a year, is also well placed to benefit from significantly increasing global demand for electric vehicles – a single electric car can have up to six kilometres of copper wiring.

“We like the focus on low-cost production of high-quality base metals and the company’s commitment to paying attractive dividends. The forecast yield is 6.1%.

“Mining royalties business Anglo Pacific Group is another business repositioning itself to benefit from the growing number of electric vehicles. Part of its strategy is to focus on commodities such as nickel, which is used to lengthen battery life in electric cars. The stock’s forecast yield is 4.9%.”

How would you summarise the outlook for equities?

“There’s uncertainty about Brexit and where Donald Trump’s trade tariffs will lead us, of course, but overall I’d characterise the environment for UK equities as benign.

“Depending on the economic data that emerges, we may see two interest rates rises over the next 12 months to combat inflationary pressures. But any increases are likely to be modest and we’ll still be in a low interest rate environment. That benefits companies borrowing to invest in growth and also supports consumer spending.

“In terms of tax on profits, companies in the UK are paying 19% Corporation Tax, compared with 28% in 2010, and the Government has announced that this will be cut by a further two percentage points to 17% in April 2020. So, again, that’s supportivefor businesses.

“In currency terms, sterling remains weaker against the US dollar as a result of the Brexit vote and that’s helping exporters by making their prices more competitive for overseas buyers. At the same time, the pound has regained some of the lost ground, which means we’re not feeling the squeeze on import costs to the same extent that we were.

“So, overall, I’m positive about the outlook. We’re continuing to identify attractive opportunities at company level, while at the macro level I’m reassured that we have able policymakers in the Bank of England and that they’ll do what’s right for the economy.”

Siddarth Chand Lall is Manager of the Marlborough Multi Cap Income Fund, which holds some or all of the stocks mentioned. The views expressed are his own and should not be taken as investment advice.

Risk Warning

Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds. The value of an investment and the income from it is not guaranteed and will vary. Values can fall as well as rise, and there’s no guarantee an investor will make a profit. They may get back significantly less than they invest. The Fund invests in smaller companies which carry a higher degree of risk than larger companies. The shares of smaller companies may be less liquid and their performance more volatile, especially over shorter time periods. The Fund invests mainly in the UK. Therefore it may be more vulnerable to market sentiment in that country. Marlborough funds invest for the long-term and may not be appropriate for investors who plan to take money out within five years. You are required to read the Key Investor Information Document (KIID) before making an investment.

Disclaimer: The stocks and ideas mentioned in this report should not be construed as a recommendation to buy or sell anything. This document is intended only as an illustration of the investment themes likely to prevail over the coming months and is based on our views at the time of writing. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or needs of individual investors.

Regulatory Information

The KIID and prospectus for all funds are available free of charge at www.www.marlboroughfunds.com or by calling 0808 145 2500. This document is provided for information purposes only and should not be interpreted as investment advice. The information contained herein has been prepared from sources believed reliable but is not guaranteed and is not a complete summary or statement of all available data, nor is it considered an offer to buy or sell any securities referred to herein. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or need of individual investors. Issued by Marlborough Fund Managers Ltd, authorised and regulated by the Financial Conduct Authority. Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Registered in England No. 02061177. Please note that for your protection telephone calls may be recorded.

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