Chelverton UK Equity Growth Fund: March 2019 Fund Commentary

Fund Update
March 2019 Print article
James Baker Fund Manager

The UK Equity market continued to rally in March, capping off a strong 1st quarter with investors looking through BREXIT and trade wars and focusing on underlying company fundamentals, with most corporates reporting robust results, and attractive valuations, post the sell-off at the end of last year. The Fund, having lagged the market early in the year, had a good month, picking up some relative performance versus its IA UK All Companies benchmark, to the extent that it marginally outperformed over the first quarter - a satisfactory outcome given that smaller companies generally, where the Fund is overweight, have underperformed large and mid-caps.

At the individual stock level, the Fund’s performance was driven by a strong rebound across a number of holdings which had sold off heavily in Q4 2018, with the likes of Tarsus, RPS, IMIMobile, XP Power and dotDigital rallying strongly. Two of our largest holdings, Future and Clinigen, also rose sharply on the back of well-received acquisitions, whilst Dairy Crest and IFG Group announced agreed take-over approaches (the Fund having had no bids in the whole of 2018). On the negative side, Proactis Holdings collapsed after a surprise profits warning caused by ongoing issues at its late 2016 US acquisition. Quixant fell on the back of an underwhelming trading update that highlighted that some of its customers were losing market share, impinging on Quixant’s own growth rate.

During the 1st quarter we added to a broad number of holdings which we felt looked over-sold following the Q4 sell-off, including Tyman, Clinigen, XP Power, Volution, Restore, SThree and Alliance Pharma. We also started a number of new holdings from our screened universe where we felt valuations had come back to an attractive level, buying back into GB Group, IMIMobile and Victrex, which we had exited on valuation grounds in 2018, and Clipper Logistics, which we held when the Fund first launched. We also started holdings in Instem and Aptitude (formerly Microgen), two Tech companies we have monitored for a number of years without owning until now. In a couple of instances, these new holdings rallied sharply before we managed to buy a full weighting, so we will be reviewing such positions over the coming months.

Going forward the market has obviously enjoyed a strong rally whilst many of the issues that spooked investors at the end of 2018 remain unresolved. However, underlying company news flow for the most part remains robust and valuations in our view, whilst no longer acutely oversold, still look attractive. If anything we have used the weak phase in the equity market to increase our exposure to structural growth and other less economically correlated stocks, at what we feel are attractive valuations.