In August, global equity markets were slightly down whereas the Fund was close to flattish for the month. On a year to date basis the Fund is around 1% ahead of the MSCI World Index. This has been achieved despite the dividend universe still lagging the overall market.

Stock selection was positive for the month. Stock selection was strong within the sectors energy, telecommunication and materials. Within the energy sector, the Fund benefited from its investments in refining stocks like HollyFrontier and PBF Energy. Hurricane Harvey had quite some impact in the Gulf of Mexico and onshore in Texas, leading to the closure of a significant part of the US refining capacity (over 20%). It resulted in 5-year high refining margins. As always (applicable to every investment in the portfolio), we model our companies with normalized profits and cash flows and both positive and negative spikes do not lead to changes in our valuation cases. The refining stocks are still attractive on normalized earnings despite the strong share prices recently.

Sector allocation was slightly negative in August as the overweighted sectors telecommunication and financials both lagged the market. Positive stock selection within these sectors compensated. In addition, the Fund is underweight in the sector information technology (as a big part of the sector does not pay a high enough dividend), that was the second-best sector this month.

Market volatility remains subdued, with few large moves in the indices. The benign environment attracts investors as it seemingly offers returns without the volatility that usually accompanies public markets. It is often in these markets that mistakes are made. Investors start to move up the risk curve without realizing it and are often faced with overvalued and/or illiquid assets once the cycle turns. We operate in the same capital markets as everyone else, and are similarly faced with elevated multiples. We do believe that safe investments with sufficient expected returns continue to exist, they present themselves in areas where the perception of risk is high. Currently this is the case in cyclical firms, or in commodity based operators. Within this space we look for companies with a sustainable low cost position and strong balance sheets to reduce the long term risk.

Our focus is on finding companies with sustainable dividends that can be bought at a discount to our estimate of intrinsic value. We base our estimate on the Earnings Power Value (EPV) framework of the Columbia Business School. EPV allows us to separate the three valuation components: asset value, earnings power and growth value. This framework improves our ability to analyze what we are paying for, and gives insight into whether a stock is priced with a margin of safety.

The Fund now has a forward yield of around 4.8%. We remain optimistic on the dividend growth prospects for 2017.