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Global Equity Income Portfolio: October 2023

Against a background of high inflation and continued strength in economic data in the US, central banks have continued to tighten market liquidity. The equity market declined globally with the FTSE All World Index (USD) -3%. The environment of good economic news meaning less supportive central banks and hence negative share price moves can be puzzling for those not involved in financial markets. The month was worse generally for higher dividend paying stocks with the FTSE All World High Dividend Index (USD) -3.6%.

The Global Equity Income model portfolio declined 1.4% (USD).

The best performing stocks during the month were BAE Systems (11.2%), Microsoft (7.1%) and AT&T (4.5%). The increase in global political instability and threats to peace means that the outlook for defence spending, and hence BAE Systems, continues to climb. Microsoft reported results showing positive cloud trends and is set to roll out AI assistance to Office products which looks set to provide another engine of growth. AT&T also reported positively exceeding expectations and increasing guidance.

At the negative end, Diversified Energy declined 17.6%. The decline was so great with high volume of shares transacting that the company made a stock exchange announcement to the effect that they knew of no reason for the share price decline. It is highly unusual for any stock to sustainably offer a double-digit dividend yield: Diversified Energy shares now yield over 20%. VW Group earnings were 6.6% ahead of expectations, however, shares declined by 8.5% with concern over the outlook for consumer discretionary spending. With shares trading on a prospective price to earnings ratio of less than four times, and yielding over 8%, we believe much of these concerns are already priced in. Roche shares declined 6.1% with the company experiencing a late-stage clinical trial failure.

Looking forward, there are reasons to think that the performance of equities as an asset class will improve. The Federal Reserve appears to be at the end of their rate hiking cycle. Forward looking economic indicators in Europe look positive and Government policy support for the Chinese economy is being delivered.