Shires Income PLC

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An update from our investment manager, Iain Pyle - 22 April 2021

March was another month of strong equity performance globally. Despite a worrying rise in Covid-19 cases globally, and especially in some emerging markets, equities continue to look through the near term risk. In the UK, this is supported by a vaccine programme that continues to deliver and by a gradual lifting of restrictions. The leisure sector has already seen the benefit of some return to outside drinking and dining in the past week, for those of you in England at least, and there is not as yet any evidence to change the timeline on a significant increase in personal freedoms by the end of June. This dynamic means performance across the market has been led by consumer discretionary companies and by more cyclical industrials, although telecoms, consumer staples and utilities all posted strong returns in March.

The broad performance reflects the fact that perhaps more importantly, equity valuations, along other asset classes, are being moved higher by government stimulus packages (as signed in the US last month) and increasing money supply globally. In this environment, with rising bond yields and, for a short time potentially, higher inflation, the Trust faces a headwind relative to the benchmark due to its position in preference shares which don’t benefit to the same extent as equities. However, in periods like this it is important to remember the reason the portfolio is structured as it is and the long term benefit of the preference shares which are naturally defensive and help deliver an overall outcome that prioritises resilient income and long term capital growth. Thirdly, their presence allows Shires Income to diversify its equity positions and hold some names with a lower headline yield. So although the preference shares will underperform in months like March, we should continue to recognise the long term benefit for investors.