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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – August 2016

MI Chelverton UK Equity Growth Fund - Monthly Manager Commentary - August 2016

The Fund continued to perform strongly last month, comfortably beating its IA UK All Companies benchmark as UK Small and Mid caps, on which the Fund is focussed, continued their recovery from the “knee-jerk” sell-off they experienced post BREXIT. Economic newsflow was generally positive with impressive domestic PMI manufacturing data and strong retail sales and this, together with the rate cut, helped underpin the rally with domestic cyclicals, which were left behind in August, joining the party. Consequently some of the Fund’s best performers were UK cyclicals with DFS Furniture, Mortgage Advise Bureau, Polypipe and Matchtech recovering a large part of their post BREXIT losses. However top prize for performance went to Blue Prism, the white collar automation business, which after a strong July returned 85% in August after signing a contract with a global tier 1 bank. Proactis was our next best performer returning a modest 30% as its shares recovered from a period of weakness after a positive trading update. Two recent investments also contributed strongly. Bioventix, which we bought back into last month responded to a positive trading update, whilst Autins Group, a noise and vibration materials specialist, was an IPO which got off to a good start on the market.

During the month, we made two new investments: participating in the IPO of Autins Group and buying a holding in On The Beach, the online low cost travel agency, which is taking share from the traditional High Street operators. We sold out of three holdings: Hill and Smith and RWS Holdings on valuation grounds after strong performance in their shares, and Vectura Group, a pharmaceutical business, which came into the portfolio when it acquired Skyepharma. We owned Skyepharma because we liked its growing revenue streams from its portfolio of products, whereas Vectura has a greater dependence on its partners securing licenses for its product pipeline, meaning the enlarged group lacked the level of revenue and cashflow predictability we like to see.

Having seen a sharp rally in UK Small and Mid Caps over the last two month, our segment of the market is probably due a period of consolidation, as investors take stock of how the economy performs over the autumn and as the US election nears. Notwithstanding this, with UK interest rates at a de minimis level and more likely to come down rather than rise, meaning there are scant returns elsewhere, equities remain one of the most attractive asset classes for investors.