When we introduced the dividend growth strategy in April 2015, we were struck by the stark valuation differential we saw between the cyclical and defensive parts of the market. From the end of the global financial crisis until 2016, defensive stocks – in particular, so-called ‘bond proxies’ – enjoyed a prolonged bull run. A low bond yield environment and investors’ willingness to pay a premium for perceived safety drove their share prices higher. In many cases, the market was willing to pay up for these stocks, regardless of their deteriorating fundamentals. On the other hand, cyclical stocks offered strong fundamentals, but were out of favour. As such, when we put together our portfolio in April 2015 we had a significantly higher weighting of cyclical stocks than we would under ‘normal’ circumstances. We have maintained the tilt throughout the three years since then, as the valuation differential has persisted.