Bath/Head Office & Unquoted Equity Team:
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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – September 2016

MI Chelverton UK Equity Income Fund - Monthly Manager Commentary - September 2016

Brexit uncertainty persists and understandably remains a concern for investors but at least we now have an outline indication of the timing if not of the fundamental practicalities of the exit process. The domestic macro numbers remain robust including, just recently, Construction PMI and Services PMI figures and it appears that recent market volatility has been driven by short term fluctuations in the level of Sterling which we expect to continue. We note that UK GDP numbers appear to remain ahead of the post referendum downgrades and we continue to expect upgrades as we move through next year. If we accept that bond valuations globally have made equities appear relatively attractive from a valuation perspective then over the next twelve months the main risks appear to be political with elections taking place in the US and Europe. As a result we expect periods when there will be a short term flight to mega cap liquidity as election uncertainty grips markets but there will also be scope for periods of outperformance by UK small and mid caps as our economy continues to grow. As we highlighted last month, aggregate dividend growth from the companies in our investment universe continues to be ahead of expectation.

One of the most pleasing aspects of the last month was the positive contribution to performance made by stocks that released results. We have often noted that in an information vacuum small and mid caps will tend to tread water or become overly affected by the musings of a whole host of market commentators. It is corporate news flow which acts as tangible evidence of what is happening in the ‘real’ world which then serves to dispel or reinforce short term share price movements. Positive numbers and robust outlook statements from Mucklow, Galliford Try, Kier and Moss Bros amongst others resulted in notable share price increases. At the same time Electrocomponents released a bullish trading statement, Clipper was buoyed by a new contract with John Lewis and Fenner bounced as it reassured investors. Conversely N.Brown fell after a trading update, a number of other retailers, Debenhams, Games Workshop and DFS were sold off and our estate agents underperformed. We reduced our exposure to Ashmore which, after a strong period of performance, had become our largest weighting and topped up Greene King, Cape, Headlam and Restaurant Group amongst others.