In June, global markets were flat. Markets went up and down as worries about trade wars continued to impact sentiment. The Fund lagged the market for the month, and is trailing the index on a year-to-date basis. During the month we also completed our quarterly rebalance.

Our underperformance for the month was purely due to stock selection. Stock selection was negative in the telecom and materials sectors. Our bottom contributors for the month were Triton International, MTN Group and Cardinal Health. Triton International is an international container leasing company. Worries about trade wars resulted in a drop in the share price. MTN group, an African telecom operator was weak on general emerging market weakness. Cardinal Health, a US pharmaceutical distributor, dropped as Amazon acquired Pillpack. Worries about Amazon disrupting the healthcare market resulted in a de-rating of the whole sector. We believe these worries are overdone, given the low gross margins already earned by healthcare distributors. Our top performer for the month was L Brands, which rebounded on improved sentiment.

During the quarter we completed our quarterly rebalance. We sold seven companies and added six new investments. Valero Energy and PBF Energy were sold as the yield dropped below 3%. Spark New Zealand, Kennedy Wilson, Tate & Lyle and AstraZeneca were sold on valuation grounds. Mizuho Group was sold as we found a more attractive alternative.

Listed below is an overview of the companies acquired.

- Gilead: Attractively valued US pharmaceutical company. Gilead owns a Strong HIV franchise and has optionality in its oncology division from a recent immunotherapy acquisition. Trades at a high free cash flow yield, and we believe worries about poor capital allocation are overdone.
- Pepsico: Large US consumer staples firm. Pepsico dominates the snack category and is a strong challenger in drinks. The de-rating of consumer staples in general has helped the valuation become more attractive.
- Cardinal Health: US distributor of drugs and medical supplies. Operates in an oligopoly, with two other large distributors. Worries about disruption and poor execution has led to a significant de-rating and now has a close to double-digit free cash flow yield. We believe distribution is an essential part of the industry and that the current low margins are unlikely to attract new entrants.
- Technicas Reunidas: EPC engineering firm active in the oil & gas industry, with a focus on downstream activities. The downturn in oil and gas has impacted margin and we believe this will revert with the recovery in oil prices.
- Banco Do Brasil: Brazilian bank purchased at mid-single digit PE. Uncertainty surrounding Brazil resulted in a sharp de-rating despite strong operating results.
- Invesco: Large American asset manager. Is active in both passive and active strategies. Worries about fee pressure has created an attractive entry point.

After a period of muted markets, we welcome increased volatility as this improves our ability to pick individual stocks. We believe European and Emerging market stocks offer strong expected returns. With the renewed rally in the United States, the same cannot be said of American stocks. Despite the tail wind of tax reform, it remains difficult to find 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 5.2%. Our portfolio trades at a significant discount to market multiples. We remain optimistic on the dividend growth prospects for 2018.