Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:
MI Chelverton UK Equity Growth Fund – Fund Manager Commentary – July 2016

MI Chelverton UK Equity Growth Fund – Fund Manager Commentary – July 2016

A much better month for Mid and Small caps and therefore the fund, which recovered virtually all of the fall it experienced in the sharp sell-off after the BREXIT vote, as the speedy resolution of the Tory party leadership enabled the market to regain some of its poise. Interestingly the bulk of our performance came from our structural growth stocks, which should be less affected by any post BREXIT slowdown in the UK economy. Our UK domestic cyclical holdings, which sold off heavily in the week after the vote, only started to show a tentative recovery towards the end of the month.

Anecdotal evidence from the management teams we meet suggests that the domestic economy was already slowing ahead of the UK referendum as companies put investment decisions on ice ahead of the vote. There’s evidence that some activity has recommenced post the vote, however with the BREXIT vote being so closely followed by the holiday season most management feel that we will only get a clear sense of the economy’s direction as we move into the autumn. From a pure common sense point of view, given the UK’s propensity to import a high proportion of its consumer goods, the sharp devaluation of Sterling will mean that either retail margins will come under pressure and or consumer’s disposable income will shrink. Another obvious risk is inward investment to access the wider EU market, particularly for financial services, will be put on hold until our future trading terms with the EU become clearer.

With regard to individual share price performance last month, Wireless Group was our best performing share thanks to a recommended cash offer by News Corp at a 70% premium to the market price. Thereafter technology stocks like Quixant, Blue Prism, NCC Group, Craneware and IQE performed strongly on the back of good results or strong trading updates. Conversely Proactis, a technology company, was one of our weakest performers, giving up earlier gains in the absence of any news-flow. Otherwise Centaur Media, a UK centric conference and publishing business, and Orchard Funding the specialist lender fell on disappointing trading updates.

With BREXIT out of the way and the Tory leadership resolved we have seen the level of IPOs and corporate fund raisings pick-up sharply with deals coming at quite attractive valuations to ensure a decent reception in a nervous market. To date we have taken part in a Fund raising for Stride Gaming, an online gaming business with a very experienced management team, which is consolidating the online Bingo market. We also bought back into Bioventix, which makes antibodies for the healthcare diagnostics market, because the valuation had come back to what we feel is an attractive level.