The Fund had a better August after a period of relative underperformance over the preceding few months, benefitting from the outperformance of small caps, the Fund’s main focus, over large caps, which were impacted by trade war concerns. Domestic stocks took the interest rate rise in their stride, suggesting the move was widely anticipated and priced in to the market.
The main contributors to the Fund’s performance were all driven by positive trading news with Boku moving ahead sharply in anticipation of strong interim results, On The Beach rallying strongly on the back of a reassuring update after a period of share price weakness, and TT Electronics and Elektron Technology both responding well to positive updates. On the negative side Chemring was weak after an explosion at its UK Countermeasures facility, which tragically resulted in a fatality and caused the company to warn on this year’s and next year’s profit outlook. XP Power was weak despite reporting good results, however the impact on our overall return was marginal as we had previously been reducing our holding on valuation grounds.
The recent market volatility has enabled us to re-engage with several companies in our screened universe as they have come back to valuations that we regard as attractive. We have used the volatility in XP Power’s price to start rebuilding our holding as well as bringing Elementis, an old favourite, and Convatec back into the portfolio. We also invested in Jadestone, an Asia Pac based oil producer, which is acquiring non-core assets from major operators on seemingly low valuations.
Finally, we have started a holding in Spirent, the mobile networks and device testing business, which we expect to benefit from a pick-up in activity as the next 400G Ethernet network and 5G mobile phone technology cycles take off, following a prolonged period of market weakness. On the sell-side we exited Victrex, Next Fifteen and Anpario on valuation grounds.
Looking forwards, BREXIT remains a curate’s egg with conciliatory noises towards an accommodation coming from the EU being counterbalanced by more noise from domestic political factions. We remain cognisant that any resolution is likely to drive a rebound in oversold UK cyclical names. Meanwhile global trade wars continue to ramp up, clouding the outlook for global GDP growth.