Dominic Younger’s February Market Snapshot

UK equities started the year strongly, with the FTSE All-Share index returning 3.1% in January, while the FTSE 100 hit new highs during the month. Risk appetite was tested by geopolitical developments, most notably when US President Trump threatened to increase tariffs on several European countries, including the UK, that opposed his aim of annexing Greenland. However, equities later rebounded as Trump softened his stance, hailing a “framework” agreement around the island’s future following talks at the World Economic Forum. UK stocks also benefited from strength in the country’s sizeable mining sector.

Economic data in the UK was mixed. GDP growth surpassed forecasts in November, while government borrowing fell further than forecast in December. In addition, January’s flash composite purchasing managers’ index reading was comfortably ahead of expectations, with both services and manufacturing activity accelerating during the month. However, annual inflation ticked up further than anticipated in December, tempering forecasts for the pace of future Bank of England interest-rate cuts; policymakers were expected to keep rates on hold at the bank’s February meeting. Unemployment in November remained at its highest level in over four years, against predictions of a small decline. Elsewhere, retail sales in December rose faster than expected, while consumer confidence edged up in January, albeit remaining steadfastly in negative territory.

During the month, the Trust’s net asset value returned 2.9%, slightly short of the FTSE All-Share return of 3.1%.

Positive contributors included XP Power (38%), which designs and manufactures systems to regulate power to devices in the medical, semiconductor and general industrial markets. The company reported a return to positive revenue growth in Q4 2025, after no growth in Q3 (in constant currency terms), and expressed optimism that full-year earnings would be in line with expectations. Fellow engineering business IMI (11%) and Weir Group (13%) also contributed positively to returns as operating momentum in the respective businesses continued to gain recognition.

Our lack of exposure to RELX (-15%) and Experian (-18%) also helped relative performance. These shares, traditionally regarded as ‘quality’ names in our market, were pressured by ongoing concerns that AI could pose a challenge to the competitive moats of software-focussed businesses. The debate around this cohort has been broad-brush and somewhat febrile in the first instance, as piecemeal news flow on nascent AI-enabled competition emerges. Our own view as contrarian investors is to monitor from the sidelines, scrutinise fundamentals and remain alive to significant mis-pricings.

Relative performance versus the FTSE All Share was negatively impacted by the Trust’s underweight exposure to banks, miners and aerospace & defence stocks. All three sectors were strong in January. Banking stocks rallied in expectation of another strong round of earnings. Defence stocks rallied after news of US intervention in Venezuela, Trump’s threats to annex Greenland and tensions between the US and Iran. Mining stocks outperformed as the precious- and base-metals complex attracted pronounced buying pressure from underweight asset allocators.

The holding in Burberry also weighed on relative performance. The shares were impacted by a cautious outlook from fellow luxury goods firm LVMH, which stated that US tariffs, weakness in the dollar and softer demand could continue to pressure profit margins. However, Burberry’s own fiscal third-quarter results showed continued increases in sales, helped by demand from Gen Z customers in the Greater China and Asia Pacific regions. In addition, management stated that full-year operating profit is expected to be in line with analyst forecasts.

Trading activity in January remained centred around tilting the portfolio in line with our refreshed contrarian value approach, as discussed in last month’s report.

We continued to build our contrarian positions in speciality chemicals firm Croda and beverages company Diageo; both were added to the Trust in December. We also topped up our holdings in pest control firm Rentokil, gaming business Rank and pensions company Chesnara.

We took the chance to recycle some profits in catering firm Compass into these newer ideas, a move which also has the benefit of enhancing the overall yield and dividend earnings power of the portfolio.

Our focus will remain resolutely on long-term ownership and quality stewardship. As patient conviction investors, we will continue to avoid whipsaw short-term trades and concentrate on company fundamentals to target strong risk-adjusted returns for the Trust.

As at 31 January 2026