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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – January 2017

The Fund returned 2.32% in January compared with 0.50% for its IA UK All Companies benchmark. There were no particular sector trends evident within our performance, the stand-out market returns once again coming from the miners, where the Fund, given its UK Small and Mid Cap mandate, has no exposure. Top contributors to performance over the month were Games Workshop, Watkin Jones and Synthomer, which all responded to positive results and trading updates. On the negative side, Revolution Bars fell back, giving up some of its recent strong gains.

During the month we started holdings in Acal, a supplier of designed-in customised electronic products for a wide range of industrial customers across Europe, and Tungsten Corporation, a market leader in the provision of electronic invoicing services to an impressive list of major global businesses. Tungsten is well-financed, high gross margin and experiencing rapid top-line growth, as the world converts to online invoicing. At the same time its new management team are resolving legacy cost and product pricing issues within the business.

Aside from the strength in the miners we have seen continued outperformance from foreign earning industrials and underperformance of UK consumer cyclicals particularly general retailers, which are seen to be at risk from higher minimum wage costs and the requirement to pass on the higher costs of imported goods to the consumer facing a squeeze on their real incomes as inflation gathers pace. Interestingly though the UK economy continues to defy post BREXIT expectations with GDP forecasts being steadily upgraded, it’s quite possible if UK growth maintains its momentum that we will start to see Sterling strengthen, alleviating the pressure on UK household budgets. Consequently, looking forwards, we are starting to gently adjust our weightings in industrials, which have been superb performers since BREXIT, but in our view are now looking quite expensive, and topping-up some of our very heavily sold down UK consumer holdings.