The Fund’s performance relative to its IA UK All Companies benchmark bounced back strongly after an underwhelming October, despite not being exposed to any of the “in vogue” mega-cap sectors of Banks, Insurers and Miners by virtue of its Mid and Small cap investment strategy. Performance was driven by good trading updates from a number of holdings, namely Blue Prism, Polypipe, Quixant and Severfield, which all performed strongly. Other contributors were On The Beach, a recent addition to the Fund, which rallied strongly after a period of share price weakness; Proactis, on the back of an earnings enhancing acquisition, and finally Somero Enterprise, the US building equipment business, which rose strongly on the back of Trump’s election victory and its implications for US construction spend. Conversely Craneware, the US hospital billings software business, sold off sharply as investors worried about Trump’s impact on healthcare budgets. We believe that Craneware’s business, which has high levels of revenue visibility over the next few years, should be relatively unaffected by the change in administration, so we used the share price weakness to take our holding from a relatively small to a more meaningful position in the Fund. DFS Furniture shares were also weak, after a share placing. During the month, we sold our holding in Ebiquity, after new management reviewed the amount of investment required to grow the business, implying lower margins than we’d previously anticipated and flat profits for the immediate future.
From a macro perspective Trump’s election victory has been game changing with the emphasis switching from monetary to fiscal stimulus in investors’ minds, implying a likely pick-up in inflation and interest rates. Consequently we’re starting to see a shift in emphasis in equities from the bond proxies to the more cyclically geared sectors, which we would expect in time to filter down to UK Mid and Small caps. Our own Autumn Statement saw a shift in emphasis towards fiscal stimulus but proved less of a give-away than many commentators had expected. Notwithstanding this, the UK domestic economy has so far proved to be more resilient than many forecasters had feared with companies for the most part meeting earnings expectations, whilst erring on the side of caution with regard to the outlook as the BREXIT debate rumbles on interminably in the background. But with several significant elections in Europe in 2017, which in themselves could have wide-ranging political ramifications, it’s quite possible that the UK will be seen as one of the more desirable markets to invest in.