November was a dull month for the Trust in absolute terms although it fared better than the broader UK market. The net asset value rose 0.1% on a total return basis relative to a 1.6% fall in the FTSE All-Share.
Following the Autumn statement from Philip Hammond in which budgetary targets were relaxed, UK government bond yields continued to rise. This rise in bond yields drove the ongoing rotation in the market away from defensive sectors such as consumer staples and telecoms, towards more cyclical sectors such as industrials and banks.
The largest individual contributor to performance was Hill & Smith, which rose following encouraging third quarter results as well as the expectation that infrastructure spend will increase globally. Hill & Smith are well placed to benefit from rising infrastructure spend given their exposure to road crash barriers and messaging signs.
The largest detractor from performance was Cape, which provides services (such as scaffolding) primarily to the energy industry. While the recent trading update was positive, there is heightened litigation risk arising from historic asbestos claims.
During the month we continued to reduce positions that we see as approaching fair value, including Weir Group, Scapa and Greencore. We added to the existing position in Royal Dutch Shell as they are making good progress on cost reductions and therefore bringing down the oil price at which they can break-even on a cash flow basis. They also pay an attractive dividend yield, which given the progress on cost cutting and rise in the oil price is looking more sustainable.