Income investment fund DIVI plc well positioned for growth slowdown

Growth

The Diverse Income Trust plc (LON:DIVI) invests primarily in quoted or traded UK companies with a wide range of market capitalisations, but a long-term bias toward small and medium sized companies.

The Company may also invest in large companies, including FTSE 100 Index constituents, where it is believed that this may increase shareholder value.

The latest fact-sheet has now been published and can be found below the commentary.

Manager Commentary 

Prior to April, company results had come in around expectations, with few outlook statements predicting significant downgrades. As April progressed however, the second quarter outlook statements started to become more cautious. 

Given that we believe the portfolio is well positioned for the ongoing slowdown in global growth, at this stage there aren’t many portfolio changes coming through. Additional capital was raised in January through the sale of the UK-quoted Russian operating businesses. In addition, the trust continues to hold a FTSE 100 Put option, covering approximately 40% of the portfolio. As the FTSE 100 Index has held up well this year, this option still stands at a modest valuation, but if there were to be a more systemic equity market setback, its valuation would rise and help offset any weakness in the rest of the portfolio. 

During globalisation many quoted companies were able to raise vast sums of capital to grow rapidly. These companies often built up a business with substantial costs. With the changing economic trends they may never get sufficient sales to fund their cost base. We have always assumed that an acceleration in inflationary pressures may leave the share prices of those companies which have negative cash flow and who have high valuations vulnerable. 

Inflation changes everything. We believe the key point is that companies generating surplus cash can deliver attractive long-term returns when market conditions are benign as they have been during globalisation.  But importantly, they can also continue to thrive even at times when equity capital becomes scarce. 

Gervais Williams & Martin Turner 29.04.2022 

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