In April, global markets recovered significantly. Global markets rallied while the Fund outperformed the market. Sector allocation was the main contributor, but we also benefited from strong stock selection. The strong month resulted in our relative performance being ahead of the benchmark for the year. Our quarterly rebalance also supported our returns as stocks that had previously lagged performed well.

The energy sector was by far the strongest performer for the month. Years of weak oil prices have reduced the amount of capital flowing into the sector. This is now resulting in less supply entering the market, while demand for oil is still growing. The expected growth in electric vehicles is also making oil companies more hesitant to invest. In commodities, supply is often a better predictor of prices than demand. With lower oil inventories, the price of oil may remain strong. Another sector which we benefited from on a relative basis was our underweight to the consumer staples sector. Consumer staples underperformed as organic growth disappointed, especially in developed markets. We have limited exposure to this sector as we believe valuations are too high given the business fundamentals.

Stock specifically, our top three contributors were Valero Energy, H&M and Hyundai Motors. Valero Energy is a US oil refiner. Valero is benefiting from a reduction in oil end-product inventories. This will likely lead to better margins throughout the year. H&M, one of our weakest performers year-to-date, rebounded on insider buying by its controlling shareholder. Hyundai Motors performed strongly as an activist shareholder proposed a plan to increase shareholder value for the group. Our weakest performer for the month was TSMC, a semiconductor manufacturer. Weakness in smartphone demand and a soft outlook resulted in a decline in the share price.

After a period of muted markets, we welcome increased volatility as this improves our opportunity to pick individual stocks. We believe European and Emerging market stocks offer strong expected returns, but the same cannot yet be said of the North American market. Despite the tail wind of tax reform, it remains difficult to find ideas that offer attractively valued ideas.

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 5.0%. Our portfolio trades at a significant discount to market multiples. We remain optimistic on the dividend growth prospects for 2018.