Outlook is positive as focus seems to be returning to company fundamentals

The vast majority of our companies are continuing to trade successfully, despite the macroeconomic headwinds. We hold around 50 companies in the portfolio and year to date we have had trading updates from 43 of them at the time of writing. Of these, 17 have reported trading that is ahead of expectations, 22 have reported figures in line with forecasts and only four have lagged expectations.

We employ very stringent criteria to select stocks for the fund. We look for companies that have a sustainable competitive advantage in a sector underpinned by a long-term structural growth trend. We believe these businesses should be able to maintain their growth trajectories irrespective of the wider economic backdrop, and this is what appears to be happening in the vast majority of cases.

We have added only one new stock to the portfolio so far this year, online sports betting, gaming and entertainment company Flutter, which was formerly Paddy Power Betfair. It is a strong business focused on the lucrative US market and we also see the company benefiting from a planned additional New York share listing.

We have trimmed several of our stronger-performing large-cap holdings, including pest control and hygiene company Rentokil Initial and pharmaceutical business Novo-Nordisk, and added to a number of the small and mid-caps in the portfolio. This is not a top-down asset allocation call – it is simply that we are seeing particularly attractive opportunities among smaller companies at current valuations.

One small cap we have added to is Volution Group, which supplies the construction industry with market-leading ventilation equipment to increase energy efficiency and avoid air quality problems in modern highly insulated homes. The company has made several sensible acquisitions and is growing its market share. We have also increased our holding in Indivior, which is a mid-cap pharmaceutical business that produces medicines to treat addiction and serious mental illness.

The performance of the fund has strengthened this year, which we believe is a sign that company fundamentals are coming to the fore once more. Recent trading updates, combined with current valuation levels, reinforce our view that the long-term outlook is very positive for the companies in our portfolio.

Richard Hallett 04/05/23

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. The Fund will be exposed to stock markets and market conditions can change rapidly. Prices can move irrationally and be affected unpredictably by diverse factors, including political and economic events. The Fund will be exposed to smaller companies which are typically riskier than larger, more established companies. Difficulty in trading may arise, resulting in a negative impact on your investment. Shares in smaller companies may be harder to sell at a desired price and/or in a timely manner, especially in difficult market conditions. 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. In certain market conditions some assets may be less predicatable than usual. This may make it harder to sell at a desired price and/or in a timely manner.

Regulatory Information

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Issued by Marlborough Investment Management Limited, authorised and regulated by the Financial Conduct Authority (reference number 115231). Registered office: PO BOX 1852 Lichfield, Staffordshire, England, WS13 8XU. Registered in England No. 01947598. Investment Fund Services Limited (IFSL) is the Authorised Fund Manager of the Fund. IFSL is registered in England No. 06110770 and is authorised and regulated by the Financial Conduct Authority. Registered office: Marlborough House, 59 Chorley New Road, Bolton, BL1 4QP. Copies of the Prospectus and Key Investor Information Documents are available from www.ifslfunds.com or can be requested as a paper copy by calling 0808 178 9321 or writing to IFSL at the registered office above. Source: FTSE www.ftserussell.com/legal/legal-disclaimer