Bath/Head Office & Unquoted Equity Team:
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Edinburgh Office & European Quoted Equity Team:

Investor Information

monthly manager commentary

February 2018

Markets responded adversely to uncertainty over the scale of the anticipated Fed tightening and then, latterly, over fears of the US becoming more protectionist as the rhetoric over trade wars was stepped up. At home, the results season gathered pace and generally underlined the resilience of corporate earnings, although it was noticeable that there was a bias in downgrades towards domestic consumer and retail stocks. The key to any potential upgrades here remains the prospect of growth in real wages as we move through the year. Ahead of the Italian election we ended the month with just over five percent cash which was slightly higher than usual but was only temporary and we are now back to normal levels i.e. sub three percent. The election itself had little impact largely as the result was within the predicted range of outcomes according to the polls. The recent increased level of market volatility continues to present us with new opportunities within the remit of our investment process.

At the stock level, our best performer was Fidessa who after releasing a good set of figures also revealed that they had agreed a cash offer for the company by Temenos, a Swiss software provider. RM was strong after an excellent set of numbers, Ultra Electronics responded well to reassuring results and STV recovered from an oversold position. On the downside, Galliford Try fell after announcing a capital raising which was needed as a result of a JV with Carillion. This was particularly unfortunate as their underlying housebuilding business performed very well. Northgate fell after an internal review recommended increasing their average fleet holding period which will have the effect of reducing short term profits but improving medium term returns. As we invest for long term income we are supportive and topped up our holding at the lower levels. We added to a number of our holdings including Essentra, Babcock, Marston’s, RM and National Express. Money was raised as we sold Computacenter into their tender offer and RWS, both on yield grounds, and Hogg Robinson after an agreed bid for the Company. We added one new stock to the portfolio during a placing, Diversified Gas and Oil, which owns low risk oil and gas producing assets in the US.


January 2018

At the time of writing, investors’ attention is on falling stock markets globally. Better than expected economic growth against a background of a rising trend in bond yields has led to expectations of rate rises and a sell-off in equity markets. At home, this has combined with rising sterling to undermine the prices of the large bond proxies but it[…]

December 2017

The year finished on a positive note as a shift in sentiment towards resource stocks and cyclicals and away from the bond proxies was evident. Positive noises about US corporate tax rates helped to fuel an increasingly bullish outlook for Global growth for 2018 and although the domestic economy is forecast to be slow by international standards, gro[…]

November 2017

Whilst the gloomy UK macro news continues to provide a minor headwind, there does appear to be some slightly better news on the horizon, notwithstanding the recent headline ‘agreement’ with Europe which has had a very mixed reception. Firstly, the recent strength of Sterling should provide a small boost to the relative attraction of small and mid c[…]

October 2017

The recent interest rate increase was widely anticipated and benefited our portfolio in the latter part of the month as sterling strengthened whilst the rise in the oil price was a mild headwind. We have often referred to the short term effects of ‘investor sentiment’ on both share prices and the relative performance of small and mid caps compared […]

September 2017

As the headlines continue to be dominated by fears of a slowing economy and the uncertainty surrounding the Brexit negotiations, the reassuring news is that the companies that we invest in generally continue to meet, or beat, expectations. After the busy results season it appears that earnings upgrades continue to marginally outnumber downgrades an[…]

August 2017

UK small and mid caps continue to be caught between the generally good ‘bottom up’ news that we have seen throughout the recent results season and a rather confused ‘top down’ message that appears to have got slightly worse recently. We expect this uncertainty will continue to persist for the duration of the Brexit negotiations so the message comin[…]

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 ri[…]

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[…]