Major North American equity market indices experienced significant volatility and lost ground during the six-month period ended 31 July 2022. For most of the period, investors grew concerned over the pace of the US Federal Reserve’s monetary tightening. Economists warned that hiking interest rates too much, too quickly could push the US economy into recession. These worries were exacerbated by increasing lockdowns in China due to COVID-19, which further stressed an already challenged global supply chain. However, major US equity market indices rallied sharply in July 2022, buoyed in part by a positive start to the second-quarter corporate earnings season. The Russell 1000 Value Index, the Company’s reference index, returned 4.9% over the review period. The energy, utilities and healthcare sectors garnered positive returns and were the top performers for the period. Conversely, the communication services, financials and technology sectors posted losses and were the primary market laggards.

Inflation in the US remained elevated during the reporting period. The US Consumer Price Index (“CPI”) rose by an annual rate of 8.5% in July. The year-over-year increases in the CPI ranged from 7.9% in February to 9.1% rate in June. The continued upturn in inflation during the review period was attributable mainly to sharp increases in energy costs, particularly fuel oil and gasoline, which rose at annual rates of 44% and 76%, respectively, in July. Additionally, food prices saw double-digit, year-over-year increases for five consecutive months between March and July. Rising inflation led the US Federal Reserve (Fed) to raise the federal funds rate by 25 basis points (bps) to a range of 0.25%-0.50% following its meeting in mid-March — the central bank’s first rate hike since 2018. The Fed subsequently implemented additional rate hikes totalling 200 bps, lifting its benchmark interest rate to a range of 2.25% to 2.50%.

The US economy contracted by 0.6% in the second quarter of 2022. This marked the second consecutive quarterly decline in gross domestic product (“GDP”) – which fell 1.6% in the first quarter – meeting the definition of a ‘technical recession’. The decrease in GDP resulted mainly from reductions in inventory investment (a measurement of the change in inventory levels in the economy) and residential fixed investment, which more than offset increases in exports and consumer spending.


The Company returned 5.5% on a net asset value total return basis in sterling terms for the six-month period ended 31 July 2022, outperforming the 4.9% total return of its reference index, the Russell 1000 Value Index (in sterling terms). The revenue account remained healthy, building upon the record established in prior years.

The Company’s performance relative to the reference index for the period benefited from stock selection in the industrials and real estate sectors, along with an overweight position in energy. The largest contributors among individual holdings were multinational pharmaceutical firm Bristol-Myers Squibb; gaming focused REIT Gaming and Leisure Properties; and biopharmaceutical company AbbVie. Bristol-Myers Squibb’s approval of a key drug, mavacamten, released an overhang which had pressured the shares. Gaming and Leisure Properties announced a plan to acquire two Rhode Island casino properties – Bally’s Twin River Lincoln Casino Resort and Bally’s Tiverton Casino & Hotel – from Bally’s Corp. for US$1 billion. Shares of AbbVie outperformed despite guidance for its new drug, Rinvoq, drove longer-term sales expectations higher after the loss of patent protection for its key drug Humira. Despite the portfolio’s overweight position to the energy sector, which outperformed the market during the quart

The largest individual stock detractors from performance included Canadian financial services company CI Financial, and apparel maker Hanesbrands, as well as the absence of a position in the oil and gas company ExxonMobil.

CI Financial continues to execute well on its turnaround story but pressure on equity markets and fees weighed on the stock price. Shares of Hanesbrands underperformed as several major retailers and the company’s corporate customers lowered guidance throughout the period to account for lower consumer demand and elevated inventories.

The lack of exposure to ExxonMobil weighed on the Company’s relative performance as the stock price rose sharply despite the company delivering generally positive results for the first two quarters of its 2022 fiscal year, attributable mainly to strength in its Upstream segment.

Portfolio Activity 

The Company’s investments remained consistent with our high-quality, cash-generative stock selection process and market volatility created new opportunities to add quality companies into the portfolio at attractive prices. During the review period, we initiated an equity position in CVS Healthcare, a retail drugstore chain operator and pharmacy benefit manager. We believe that the company is making significant improvements to the quality of the business, pivoting the business towards more attractive, structurally growing areas of healthcare.

The key strategic initiative is to decrease its retail pharmacy footprint and invest to build out primary care delivery, where there is significant opportunity for growth, as 30% of Americans do not have a primary care provider, and the industry is moving towards value-based care, which offers more attractive returns. Positions that the Company exited during the review period included agricultural products maker Nutrien Corp. and Michigan-based regional utility company CMS Energy. We sold the Company’s holding in Nutrien after a rally in fertilizer prices drove the company’s earnings to what we believe to be unsustainably high levels, which we expect to revert to lower levels over time, along with the stock price. We exited the position in CMS Energy as the valuation reached peak levels, subsequently lowered the dividend yield to the point there was minimal total return potential. Finally, we sold the Company’s holding in freight railroad operator Union Pacific (UNP) given multiple quarters of mixed performance due to operational challenges, combined with a high relative valuation. UNP remains a high-quality operator, but at its current valuation, we believe that there is better risk/reward potential in other cyclical companies. Within the Company’s corporate bond portfolio over the review period, we initiated a holding in Norwegian Cruise Lines Corporation, Ltd. corporate bonds, which we felt were attractively priced. We did not exit any positions during the period. The investment team continues to work closely with abrdn fixed income specialists to monitor credits and market conditions.

Revenue Account

Total revenue from equity holdings in the portfolio over the period rose over 15% to £9.1 million (the same period in 2021 - £7.9 million). The Company’s holdings continued to build upon an established track record of dividend growth during the review period. Lender OneMain Holdings boosted its quarterly pay-out by 36%, representing a 10.5% annualised yield. Derivatives exchange operator CME Group raised its dividend by 11%, resulting in a 2.0% yield. Semiconductor vendor Analog Devices announced a 10% increase in its payment, equivalent to a 1.8% yield. Motor vehicle parts distributor Genuine Parts boosted its quarterly pay-out by 10%, with a yield of 2.3%. Aerospace and defence technology company L3Harris Technologies also raised its dividend by 10%, resulting in a 1.9% yield. Royal Bank of Canada raised its dividend by 9.6%, equivalent to a 4.0% annualised yield.

Medical device maker Medtronic announced a 7.4% increase in its dividend, resulting in a 2.9% annualised yield. The oil and gas company Phillips 66 raised its quarterly dividend by 5.1%, resulting in an annualised yield of 4.4%.  In addition, the Company received premiums totalling £2.0 million (same period in 2021 - £1.5 million) in exchange for entering into stock option transactions. This option income, the generation of which remains consistent with the Manager’s company-focused investment process, represented 17.4% of total income (same period in 2021 – 15.7%).

The Company continues to hold a small portfolio of corporate bonds and interest income from investments representing 0.7% of total income (2021 – 0.6%). Income from bonds and option premiums will remain secondary sources of income and dividends will continue to provide the main source of income available for distribution. Dividend The Board is declaring a second quarterly dividend for the year to 31 January 2023 of 2.5p per share (2022- 1.9p), giving total dividends for the first half of the year of 5.0p per share (2022 – 3.8p). The increase reflects the change in the dividend payment policy announced last year, which works to even out the level of the quarterly dividends. The second quarterly dividend is payable on 28 October 2022 to shareholders on the register on 7 October 2022. It is expected that the third interim dividend, which will be paid in February 2023, will be 2.5p per share and the fourth interim dividend will continue to act as a balancing figure and will be determined once the income for the year has been determined.,/p>

At the time of writing, the strong dividend growth from the companies in the Company’s portfolio, which was attributable to increased payouts as well as US dollar strength, gives the Board confidence that the dividend for the year will be covered by the net revenue return for the year.

Management of Premium and Discount

The Company’s share price rose by 5.3% to 298p and ended the half year at an 8.9% discount to total net asset value, compared with an 11.2% discount at the end of the 2022 financial year. Over the six-month review period, the Company’s shares mainly traded at a discount between

-6.0% to -10%, on a cumulative income basis. During the period 441,185 shares were bought back and cancelled at a weighted average price of 281.9p and a weighted average discount of 11.7%. The total cost was £1.25 million. The Company has not bought back any shares since the period end. Gearing The Board believes that sensible use of gearing should enhance returns to shareholders over the longer term. In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife for two loans of US$25 million with terms of 10 and 15 years. As a result, net gearing at 31 July 2022 stood at 5.6% (31 January 2022 - 4.9%).

Promotional Activity

The Board continues to promote the Company through a variety of engagement activities and initiatives, including the Manager’s savings schemes through which savers can invest in the Company in a low-cost and convenient manner (see page 29). Up-to-date information about the Company, including monthly factsheets, interviews with the Manager and the latest net asset value and price of the Ordinary shares may be found on the Company’s website which has been updated and refreshed over the last couple of months.


On 1 July 2022 Patrick Edwardson was appointed a Director of the Company. Patrick has a wealth of investment management experience, including managing the Scottish American Investment Company plc for 10 years having worked for Baillie Gifford for 27 years. The Board look forward to working with him. He will stand for election to the Board at the Company’s Annual General Meeting in June 2023.


The investment environment has become more challenging given the recession “warning signs” that are flashing, as well as the fact that a period of aggressive interest-rate tightening is well underway. However, periods of positive returns are possible during recessions particularly when companies become undervalued. Although July was overall a very positive month for the US equity market, there are still several headwinds, including the ongoing Russia-Ukraine conflict and questions over the ability of central banks globally to strike the right balance between bringing inflation under control and stymying economic growth.

The value of the portfolio and the strength of the revenue account were enhanced by the continuing strength of the US dollar relative to sterling, which approached parity in late September. The factors that drive relative exchange rate movements, including the ongoing structural impact of Brexit and the recent budget changes announced by the Chancellor of the Exchequer, could lead to an environment where the US dollar will maintain its relative strength against sterling in the near term. Your Manager believes that this latest move of sterling to the dollar is currently a benefit to the Company’s net asset value; however, currency markets are inherently volatile. We continue to engage with companies on ESG matters and monitor their evolution in this area.

More information on your Manager’s approach to ESG engagement can be found on pages 25 to 29 of the Company’s Annual Report and at

For now, we have been comforted by the strength of the second-quarter earnings season in the US and the fact that the management teams with whom the Manager has recently spoken remain reasonably confident in their forecasts for the current year.