The conflict in the Middle East during June led to in-month volatility. Stock markets managed, though, to post positive returns for the overall month, in a continuation of the recovery from early-April’s ‘Liberation Day’ lows. As well as relief following the Israel-Iran ceasefire, sentiment was supported by relatively benign US inflation data. Also helpful was news that a trade agreement between the US and China has been signed, and the sense that tariff negotiations with the US and other major trading partners were - though not yet finalised - making some progress.
In June, Evenlode Income rose +0.9% compared to a rise of +0.5% for the FTSE All-Share and +1.3% for the IA UK All Companies sector. This brings the first half return for the fund to +1.5% compared to a rise of +7.7% for the IA UK All Companies sector and 9.1% for the FTSE All-Sharei.
The fund’s relative performance has clearly lagged the UK market this year, and we have discussed the reasons why in recent investment views. The strategy’s lack of exposure to banks/insurers and defence companies has been a significant drag, accounting for much of the underperformance. The other main factor has been the share price weakness in two of the fund’s larger holdings for the year so far – Bunzl (-28%) and Diageo (-27%). More generally, the fund’s bias towards multinationals has been a performance headwind relative to the UK market, thanks to tariff and geopolitical uncertainty and the strength in sterling - particularly versus the dollar, which has weakened -10% against the pound since the start of the year.
An interesting opportunity in UK quality
As highlighted by the Spectris takeover approach (discussed in last month’s investment view) we see considerable appeal in a diverse range of asset-light, cash generative UK-listed market leaders. Many have been out of fashion over recent months, as investors have focused on other areas, but we think the opportunity for the patient investor is very good within the pool in which we fish. These companies offer growth potential and durable cash generative economics (the portfolio’s free cash flow yieldii remains above 5%).
Results colour
In terms of current operating performance, the portfolio is forecast to grow organic operating profitiii on average at approximately +7% for the 2025 calendar year as a whole. The bulk of the underlying holdings are growing at a good rate, with 59% of the portfolio forecast to grow at a high-single-digit rate or better, and 26% of the portfolio is growing at a low or mid-single-digit rate. The remaining 13% of the portfolio is expected to see a decline in organic operating profit for the yeariv. The majority of the exposure to this latter category comes from the following three holdings:
- Bunzl (3.7% holding): A strategic mis-step in its largest US subsidiary - announced in April - caused the company to revise down guidance for the year, with organic revenue now expected to fall -1% and organic profit by -8%. The company issued a trading statement in June reconfirming its revised full year guidance.
- Howden Joinery (2.7% holding): The company continues to take share in a challenging market (kitchen volumes in the UK are currently lower than the trough in 2009). Its revenue for 2025 is expected to grow slightly, but organic operating profit is expected to decline by -2% mainly due to the cost impact of the increase in national insurance announced in the government’s autumn statement last year.
- LVMH (1.3% holding): LVMH has been impacted by the weakening of demand in the global luxury sector over the last 18 months. For 2025, revenue is expected to fall -1% and organic operating profit -8%.
The rest of the exposure in this category is divided amongst smaller holdings - PageGroup, Hays, Victrex, Schroders, Ashmore and Clarkson (a new holding, discussed below). These six holdings make up a little under 5% of the fund. Though recent conditions have been difficult for these businesses, they continue to generate good cash flow and are generally trading at valuation multiples that are at or near multi-year lows.
Holdings in the low to mid-single digit categories include the fund’s Consumer Staples exposure as well as other companies such as Informa, Spirax and Auto Trader.
Holdings in the fastest growing category include a variety of information services businesses including RELX, Experian, Sage, LSEG, Wolters Kluwer. These companies are benefiting from steady demand growth, embedded customers and hard-to-replicate proprietary data and insights. The faster-growing category also includes a range of businesses including niche engineering/ industrial franchises such as Rotork, Smiths Group, Halma and Diploma, financial companies Integrafin and CME Group, and a variety of others such as Rightmove, Intercontinental Hotels Group, Smith & Nephew, Intertek, Compass and Games Workshop.
The following quotes highlight the robust performance of a selection of these faster growing businesses, despite the uncertain global backdrop:
Compass
(Organic revenue +8.5% and operating profit +11.6% for latest six months)
“The market opportunity is very attractive, with first-time outsourcing accounting for 45% of new business wins. Over the last 12 months, we have signed over $3.6bn of new contracts, an increase of 8.5% year on year, and we have a strong pipeline of future business across all our markets. Our size, and balance sheet strength, give us the most scope in the industry to invest as we further enhance our unique sectorised approach and technology capabilities.”
Sage
(Revenue +9% and operating profit +16% for latest six months):
"Amid a more volatile and uncertain macroeconomic environment, Sage remains resilient and diversified. Small and mid-sized businesses continue to adopt digital technologies to become more productive and efficient. I am confident that our proven strategy will deliver further long-term value to all our stakeholders."
Halma
(Organic revenue +9% and operating profit +13% for full year):
“Achieving such a strong performance amidst varied market conditions and a challenging economic and geopolitical backdrop is a testament to the fundamental strengths of our sustainable growth model. These include our positive purpose and culture, and a diverse portfolio of companies, each with strong positions in their markets and growth underpinned by long-term drivers. Our business model gives our talented and dedicated teams the autonomy to respond with agility to changes in their markets, and our financial strength supports continued substantial investments in future growth opportunities. These strengths support my confidence that we are well positioned to make further progress this year and in the longer term.”
Diploma
(Organic revenue +9% for most recent quarter):
“We have a differentiated business model with a well-diversified portfolio of high-quality businesses, allowing us to deliver compounding growth in good times and bad……Despite the uncertain environment I feel confident in our ability to deliver on our upgraded guidance this year. And I'm really excited about our longer-term prospects too."
Rightmove
(Guiding to +8-10% revenue growth at recent trading statement):
“We're pleased to have started 2025 with good financial, operational and strategic momentum. In particular, we're making strong strides forwards in delivering new tools and products to make the property journey smoother for both consumers and our partners. In the current uncertain global climate, our UK-focused, subscription-based and B2B-oriented business model means that we are comparatively well insulated from the volatility that some other companies and industries are having to contend with.”
Portfolio changes
As a reminder, we trimmed back several of the fund’s larger holdings in early April - such as Unilever and RELX - to manage their position sizes as they strongly out-performed in the sell-off following Trump’s tariff announcements. We broadened out the portfolio by recycling this cash into five new (or reinitiated) holdings: Rightmove, InterContinental Hotels Group, L’Oréal, Auto Trader and AstraZeneca. These are all very cash generative market-leading companies that add interesting diversification and growth potential to the portfolio. Elsewhere, we made some tweaks within the economically sensitive portion of the portfolio to turn the dial up even further on balance sheet strength – including reductions in the position sizes of Hays and Victrex (now both 0.6% holdings).
New position: Clarkson – Global market leader
We have also, over the last few weeks, initiated a small position in Clarkson, the global leader in ship broking. Held in Evenlode Global Equity since 2023, concerns around US trade policy caused weakness in recent months, providing an attractive entry point for a high-quality market leading business with good structural growth prospects. Founded in 1852, Clarkson plays a vital intermediary role in facilitating the global movement of key commodities, such as crude oil and iron ore. Its extensive global networks of ship charterers and vessel owners, and specialist insights on demand/supply dynamics, underpin its strong competitive position, with number one or two positions across its core ship broking markets. Its advisory arm, port services and industry research further embed Clarkson with customers. Broking generates the bulk of profit, with the company earning commission based on the freight rate for each voyage. The business has been built primarily through an organic-led strategy, driving strong returns on capital and through-cycle growth, with revenue and profit compounding at c10% since 2006.
Sea transportation remains essential for global economic activity, facilitating around 85% of all trade flows, and helping to marry global demand/supply mismatches in critical commodities. Rising global GDP and prosperity act as a long-term tailwind for Clarkson’s markets. Additionally, structural shortages in ship supply - a legacy of the post-Global Financial Crisis decline in shipbuilding capacity - and tightening fuel efficiency regulations offer further support for freight rates.
While Clarkson’s earnings are economically sensitive, freight rates are largely driven by localised supply and demand conditions for each commodity class, which helps moderate overall volatility. With the exception of a slight decline in 2020, revenue has grown every year over the past decade, and Clarkson runs a conservative balance sheet with a significant net cash position.
Clarkson released a trading update at the beginning of May downgrading profit expectations and highlighting a fall in volumes and some freight rates due to increased uncertainty as global trade tensions escalated. With uncertainty still surrounding Trump’s trade policies, the risks around this year’s numbers are higher than usual. Consensus forecasts are currently for revenue to decline -9% in 2025, before returning to growth in 2026. Despite these near-term challenges, the share price decline provided an attractive entry point given the quality of the business and long-term growth prospects. The stock is trading at a compelling valuation, with a dividend and free cash flow yield of over 3% and 6%, respectively. We have factored Clarkson’s economic sensitivity and share trading liquidity into our position sizing, and built a position of a little under 1%.
That’s all for this month – wishing you a great summer, and we look forward to updating you with key themes from the interim results season over coming weeks.
Hugh, Chris M., Ben P., Charlotte, Leon and the Evenlode team
14 July 2025
Evenlode has developed a Glossary to assist investors to better understand commonly used terms.
Please note, these views represent the opinions of the Evenlode Team as of 14 July 2025 and do not constitute investment advice. Where opinions are expressed, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This document is not intended as a recommendation to invest in any particular asset class, security, or strategy. The information provided is for illustrative purposes only and should not be relied upon as a recommendation to buy or sell securities. For full information on fund risks and costs and charges, please refer to the Key Investor Information Documents, Annual & Interim Reports and the Prospectus, which are available on the Evenlode Investment Management website (https://evenlodeinvestment.com). Recent performance information is also shown on factsheets, also available on the website. Past performance is not a guide to future returns. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Fund performance figures are shown inclusive of reinvested income and net of the ongoing charges and portfolio transaction costs unless otherwise stated. The figures do not reflect any entry charge paid by individual investors. Current forecasts provided for transparency purposes, are subject to change and are not guaranteed. Source: Evenlode Investment Management Limited, authorised and regulated by the Financial Conduct Authority, No. 767844.
Market data is from S&P CapIQ, Bloomberg and FE Analytics unless otherwise stated.
iSource: Evenlode, Financial Express, total return, bid-to-bid, GBP terms. YTD Performance from 31 December 2024 to 30 June 2025.
iiFree Cash Flow (FCF) - A measure of how much cash a company can generate over and above normal operating expenses and capital expenditure. The more FCF a company has, the more it can allocate to dividend payments and growth opportunities. Free Cash Flow Yield (FCFY) for a company is FCF per share divided by the current share price. A higher FCFY implies a company is generating more cash that could be paid out as dividends and to reinvest into growth of the business. The FCFY for a portfolio is the total free cash flow generated by the portfolio, divided by the market value of the companies in the portfolio.
iiiSource: Evenlode, Visible Alpha. ‘Organic’ operating profit excludes the effect of currency and acquisitions/disposals.
ivSource: Evenlode, Visible Alpha. ‘Organic’ revenue excludes the effect of currency and acquisitions/disposals.