Triggering Article 50 had minimal impact on the market last month, as the domestic economy continues to perform well and investors understand it will be sometime before the terms of exit and economic costs or otherwise of leaving the EU are fully understood. This back-drop provided a broadly supportive environment for small and mid caps where the Fund is invested, enabling it to outperform its IA UK All Companies benchmark last month. In the immediate future, the main conundrum is the impact the weakness of sterling is beginning to have on inflation and consequently on consumer spending and whether the strength of the underlying economy will result in the currency firming before too much damage is done.
During the month our best performers were IQE, SDL, Somero Enterprises and Tyman, which all responded well to strong results. SQS Quality Software Services, the software testing business, was our worst performer as it reported a slowdown in its core managed service business and higher dependence on its less predictable consultancy activities. Autins was also weak as it re-iterated the delays and sales shortfalls it was experiencing in new business with its largest customer. Elsewhere WYG, where we only have a small holding, fell sharply as it reported delays in a number of its major infrastructure projects.
During the month we exited our holding in Convatec following its promotion to the FTSE100 index. We started a holding in Ideagen, a software developer for the growing corporate risk and compliance market, by participating in a fund-raising to finance a complimentary acquisition. We also bought a small position in Immupharma, a biotech with a product with FDA “fast track” status in Phase III trials to treat Lupus, a chronic auto-immune disease with no effective cure.