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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – 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 and sensibly, ‘top down’ caution prevents analysts getting too bullish. Despite the subdued UK macro environment, the good news for UK small and mid caps is that investor sentiment remains broadly positive and we believe that current profit and cash flow estimates are supportive of share prices. From a valuation perspective, whilst domestic cyclicals appear to offer the greatest ‘value’ within our universe, there is little sign of a catalyst to start to realise this value.

There were no discernible trends or themes behind the performance last month and our top contributors were Games Workshop, after a strong trading statement, and Victrex, which now expects to pay a tax rate materially lower than previously guided. Additionally, after a prolonged period of poor relative performance, Amerisur’s shares responded well to improving oil production data. There were no big detractors to performance due to negative newsflow. During September, we exited a number of holdings which we have been reducing for some time. These include Ascential, Restore and Watkin Jones, all of which have performed well. We also exited LSL Property, as we do not expect any short term stimulus to encourage UK property transactions. We added a position in Ergomed, a service provider to the pharmaceutical industry, on a fundraise to acquire a complementary CRO business. Both the IPO and the secondary issuance market look set for an active final quarter and we expect this to be a useful source of potential new investments.