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

Investor Information

monthly manager commentary

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 is still too early to see a marked pick up in cyclicals or value stocks within our small and mid-cap investment universe. The domestic economy continues to benefit from the positive momentum in the manufacturing sector and business sentiment remains resilient, but on the downside the consumer still appears to be cautious. The recent stock market fluctuations have been largely driven by ‘top down’ macro factors and we believe that ‘bottom up’ UK corporate earnings remain resilient and broadly supportive of current valuations. On a positive note for our portfolio, dividend growth looks set to remain strong.

As a small and midcap fund we have an inherently high relative exposure to domestic cyclicals compared to the income sector as a whole, so our attention at the start of the year is partly focussed on trading over the Christmas period. As a generalisation, this year it was disappointing for us and the prices of Moss Bros and N. Brown were amongst our worst performers. Interestingly, however, there is a growing body of opinion that real wages in the domestic economy will start to grow this year which would hopefully provide some much needed respite to the high street. Connect Group performed badly after a profit warning and Galliford Try was weak due to its exposure to Carillion. On the plus side, Statpro, Curtis Banks and Ramsdens all contributed strongly to performance.  We added to over 20 stocks after the recent fundraise, including new holdings in Northgate, the van rental business in the UK, Ireland and Spain, and Saga, the UK’s leading provider of products and services to the over 50s. We continue to seek to retain a balanced sector approach within our portfolio construction process through what we believe will be a period of heightened share price volatility in the short term. This should also, however, bring a number of new opportunities into our investible universe as prices fall and dividend yields rise.



January 2018

Monthly Manager Commentary 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 […]

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[…]

July 2017

A month on from the election and, despite the Conservatives 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 war[…]

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[…]