The Fund returned 3.63% in April, lagging the UK All Companies Sector Average as the stock market rebounded strongly from a poor first quarter. The main driver for the rally was the oil sector, where the Fund has minimal exposure, as the oil price rose sharply on the back of increased political tension in the Middle East. Defensive sectors, namely telecoms, utilities and food retail, where there is minimal mid and small cap representation, also performed well. At the stock level, the Fund’s performance was impacted by two earnings downgrades. Clarkson warned of a slowdown in the transaction and corporate finance segments of its business as clients spooked by concerns over a trade war put ship investment activity on ice. Proactis Holdings, the procurement software business, sold off severely when it warned of early contract terminations and a slowdown in new orders only two months after a more positive, in-line update. News flow across the rest of the portfolio was generally satisfactory with Boku, Keystone Law, GB Group, DFS Furniture and Alliance Pharma in particular all responding well to positive results and trading updates.
During the month we exited Greencore, the producer of convenience foods, as we were concerned by the seemingly persistent issues in the group’s US business. We also sold our holding in Quiz, the fashion retailer, where despite being impressed by the growth of its online business, we had become increasingly concerned by the dependence of its wholesale business on structurally challenged department store chains. On the buy side, we bought a new holding in Elektron Technology who have a market leading global position in hermetically sealed components for extreme environments, together with a nascent businesses in ophthalmic products and real time operations management. We also started a holding in Nanoco, which has started to achieve real traction with its novel quantum dot technology and recently signed a significant supply deal with a leading global consumer electronics group.
On the macro front, the outlook continues to change with the recent strength of Sterling reversing as weaker domestic data, coupled with increased tension over BREXIT negotiations, undermined the expectation of an interest rate rise. Globally, the question is whether ongoing GDP growth can be sustained or whether it will be upset by a trade war. The Fund’s current bias remains towards structural growth, overseas earners and consumer defensives will hopefully continue to offer resilience in this environment.