Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:

Investor Information

monthly manager commentary

July 2017

The pleasing aspect of the relatively strong performance last month was that it came from a wide range of sectors and stocks. In the face of consistently negative commentary on Brexit, the ‘bottom up’ news remains, we believe, supportive of current small and mid cap valuations as activity levels appear to have picked up and management teams have rightly remained outwardly cautious. Domestic business surveys have rebounded from their immediate post election ‘blues’ helped by anticipated improvements in manufacturing and investment and levels of employment remain at historical highs. The bulk of analysts’ caution remains focused on the UK consumer and the effect of falling real wages, but this has been the case for some time and arguably is already priced into a lot of retail valuations. Given the degree of macro uncertainty, we shall continue to hold a balanced portfolio and will look to increase the underlying yield of the portfolio in periods of market weakness.

Highlighting the short term momentum that earnings upgrades can inspire, three of the top contributors to our performance in the last month all stated that trading was ahead of current market expectations. These were Games Workshop, Fenner and FDM which have no correlation to each other from a business perspective. What is consistent, however, is that management have been successful in keeping a lid on expectations and have ultimately ‘under promised’ and ‘over delivered’. With sixteen stocks showing double digit returns over the month, we feel that across the portfolio current earnings forecasts remain relatively cautious and have room to absorb more indifferent news on the macro front. Cape performed well after it was subject to a recommended cash offer. On the downside both Epwin and Eurocell fell in reaction to a competitor being downgraded, but the latter has since released a reassuring set of results. On the trading front we top sliced some of the recent strong performers including N. Brown and Electrocomponents and topped up a number of holdings including Marston’s, Close Brothers, DFS, Northgate and Centaur Media after it announced the sale of its B2C business and a simultaneous acquisition in the digital B2B space. Finally we agreed to invest in Strix at IPO, the global leader in the manufacture of kettle controls.

Archive

June 2017

A month on from the election and, despite the Tories and the DUP finally reaching some form of agreement, political uncertainty still persists and Brexit looks like becoming a ‘legislative battleground’. This all serves to undermine business optimism and consumer confidence in the short term and we have tangible evidence of this with the warning fr[…]

May 2017

Interestingly, the rather muted market reaction to the wholly unexpected election result underlined a rather weary ‘we have been here before’ feeling amongst investors and was helped by the realisation that a ‘soft Brexit’, whatever that may entail, was now the more likely outcome of the discussions with our European partners. A coalition governmen[…]

April 2017

A month of strong relative performance was the result of a number of contributory factors. ‘Top down’ the UK general election announcement and reduced fears over the outcome of the French election served to reduce political uncertainty despite a more aggressive tone emanating from the EU with respect to Brexit talks. Whilst politicians and the medi[…]

March 2017

In the month in which Article 50 was finally triggered we remain positively surprised by the continued confidence of ‘corporate UK’, tangible evidence of which can regularly be seen in better than expected dividend increases. It will be some time yet before the posturing ends and we get any substantive indication as to the ‘costs’ or otherwise of l[…]

February 2017

In a month in which the domestic equity market reached new highs, sterling continued to weaken helping to underpin company profit estimates and to heighten inflation expectations at the same time. Undoubtedly the UK manufacturing sector is undergoing a pickup in activity as evidenced by PMI figures as exports benefit from the currency moves and it […]

January 2017

There was no real sector leadership in the last month, albeit miners continued their recent run, and in the short term the direction of the UK equity market seems to be a reflection of the sterling/dollar rate, not unsurprising perhaps given its volatility and the weighting of dollar earners amongst the mega caps. Interestingly there appears to be […]

December 2016

Share prices rose as The ‘Trump Bump’ continued and the US reacted positively to the prospects of an increasingly business friendly environment, lower corporate taxes, a reduction in red tape and increased infrastructure spending. After recent events the bulls would suggest that this is not an unrealistic set of outcomes for our domestic market, al[…]

November 2016

One consequence of the Trump victory is that after years of our macro thoughts being dominated by the effects of Quantitative Easing it is now time for a re think and we have already seen the first signs of a shift from the bond proxy equities into sectors and stocks more geared to benefit from fiscal stimulus. This also seems to be the way forward[…]

October 2016

Although the Brexit vote now seems like old news the continual posturing by both sides of the voting establishment ensures that it remains in the headlines. The fact that no one can realistically understand the full ramifications of the vote at this point only serves to highlight the uncertainties involved and, to use a well worn cliché, stockmarke[…]