Concerns about the state of the UK economy haven’t fazed Shires Income (SHRS ), which has benefited from its ‘conviction positions’ in the domestic construction industry.

The £136m Aberdeen-run trust reported a net asset value (NAV) total return of 15% for the six months to end of September, beating the 11.6% gain from the FTSE All-Share. Shares were up 12.7% over the six months, taking the five-year share price total return to 73.5%.

This is good news for Aberdeen given it has just lost Murray Income (MUT ) to Artemis, reducing its stable of UK-focused trusts further.

Strong stock selection was the main driver of returns, as manager Iain Pyle looked beyond ‘lacklustre’ growth in the UK and rising concerns about the public deficit.

He said increased living wage and national insurance contributions have added cost burdens to companies while failure to cut public spending has given the government ‘limited headroom’.

‘That has created pressure on the chancellor’s Budget…and the long lead into this event has created an overhang on UK domestically focused companies,’ he said.

However, Pyle has managed to defy this downturn in sentiment, highlighting his ‘conviction position in the UK construction contractors’.

‘Kier returned 79%, Balfour Beatty 52% and Morgan Sindall 38%,’ he said.

‘These companies have performed well for several years now but remain well valued and have a robust outlook as the UK invests in power, water and infrastructure.’

Banks also benefited from ‘volume growth and yield curves which remain supportive’, with stronger performers including Close Brothers and OSB.

The gains were offset by some ‘disappointments’ where Pyle added companies after a period of weakness, which had ‘perhaps been a little early’.

This included high-street baker Greggs, which was re-added after Pyle sold out in June last year and subsequently fell 11%. He sold out of homeware retailer Dunelm to fund the purchase following a short holding period as ‘the shares had delivered a 30% return since purchase three months beforehand and had hit our target price’.

Audio-visual supplier Midwich was also added to the portfolio, as despite struggling cyclically it has ‘long term recovery potential’.

‘It is a founder-led business with a great track record which we think will get back to growth once the cycle improves,’ said Pyle.

Pyle’s one ‘genuine disappointment’ over the half year was engineer Wood Group, which saw debt increase and announced an inquiry into historic accounting that led to the departure of its chief financial officer.

‘As it stands, the company is the subject of a bid from a private peer, so could yet deliver a positive outcome, but its shares are currently not trading and we have prudently marked the value of the holding to zero,’ he said.

Although the FTSE has been on a tear this year and the trust has more than measured up, Pyle was cautious about the outlook for the UK economy, including ‘low productivity and the increasing fiscal burden limiting growth’.

‘The increased cost of debt and lack of reform to social spending means the ability of the government to change the path is limited,’ he said.

‘However, this picture can change quickly in our view. Slowing inflation into the year-end would give the Bank of England clearance to reduce interest rates more rapidly than expected.’

This would both stimulate growth and reduce government borrowing costs and means Pyle is not ruling out ‘an economic picture that looks more optimistic in six months’ time’.