Shires Income PLC

Manager's Monthly Report

January 2012

Despite being a fairly quiet month for both corporate and economic news flow equities delivered small gains over December with the FTSE All-Share Index rising by 0.8%. The European debt crisis remained at the forefront of investors’ minds and during the month the European Central Bank reduced interest rates by a further 0.25%. The politicians held another summit, and whilst no immediate solutions were identified there were proposals that will lead to tighter fiscal and political unity. There was limited portfolio activity during the month, though we did take the opportunity provided by share price strength to top-slice the holdings in Rolls-Royce and Provident Financial. Investors are struggling to reconcile the fundamentals of the markets with the potential risks posed by a disorderly resolution to the sovereign debt crisis. Equities appear to represent good value if one takes a medium term view. Valuations are attractive both relative to history and other asset classes. It is unclear if economic recovery will continue or if we will slip into another slowdown or even recession. However, it does seem that equity markets recognise these risks and are priced for all but the most severe of recessions. But, as we have commented previously, these fundamentals will count for little if we experience a disorderly default or even a breakup of the eurozone. Consequently it seems likely to be sentiment and policy making that will determine the course of markets over the year rather than the underlying trading of companies.

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