The Fund returned 5.5% in December capping off a strong second half to 2016 when it returned 26% as it rebounded from its low point after the sharp BREXIT sell-off at the end of June. There were no particular themes to last month’s performance other than a broad number of stocks generating positive returns, with companies generally meeting or beating market profit expectations. Notable risers were WYG and Photo-Me International, which responded to good results, and Games Workshop, which upgraded its profits expectations. ULS Technology (the online comparison business for conveyancing) was our star performer rising on the back of an acquisition, whilst Craneware, the next best performer, rallied from last month’s Trump related sell-off. Third placed Revolution Bars continued to re-rate from its relatively low valuation. Angle, where we only have a small position, was our worst performer as the shares drifted in the absence of any positive newsflow on its cell separation technology.
During the month we started three new holdings, buying back into both Amerisur Resources, the Colombian oil producer, which has significantly lowered its production cost by building an oil pipeline out of its production area, and Greencore Group (the UK’s leading sandwich maker), whose shares have significantly de-rated recently. We also invested in Coats Group, the leading global industrial threads manufacturer, it having made significant progress in resolving its legacy pension fund issues, which had severely impinged on its market valuation.
Looking forward one senses that this year could produce as many surprises as 2016, with several elections in the European Union, which could further undermine the political consensus there. Trump’s US election victory has shifted the emphasis from monetary policy to fiscal reflation in the world’s largest economy. So far been this has been taken well by the market, but it remains to be seen how much of this becomes a reality and whether markets at some stage get spooked by the possibility of Trump’s protectionist rhetoric becoming a reality. The British economy has so far held up much better than was anticipated post BREXIT, should this continue then sterling could at some point start to rally, particularly if there’s uncertainty in Europe as a result of local elections, alleviating the growing pressure that we’ll otherwise see on domestic household budgets. In the short-term the market’s likely to focus on triggering Article 50, but whilst this might cause a short-term hiatus it shouldn’t have any material impact on the economy until the terms of Britain ongoing relationship with the EU become clearer. In the meantime many domestic consumer cyclical stock valuations remain very depressed.