The Fund held up well in May, generating a modest positive return, against the backdrop of a falling market. This outperformance was helped by a bid for Tarsus, one of the Fund’s larger holdings and strong performances from Future (its largest holding) and CentralNic, both on the back of well- received results. On the bear tack, our industrial stocks experienced weakness across the board on the renewal of trade wars, with Synthomer, Victrex, Elementis, XP Power and IMI all producing negative returns.
During the month we topped up several of the aforementioned industrial holdings, namely Elementis, Synthomer and Victrex. We added to our position in Rank Group after its accretive acquisition of Stride Gaming to strengthen its online Bingo offering. We built up the Fund’s holding in Avon Rubber to a meaningful sized position after reassuring results and similarly added to Ideagen and Tatton Asset Management, taking advantage of recent share price weakness. In terms of new holdings, we participated in the IPO of Essensys, a software provider to the growing serviced office market, playing to the same theme we bought into with IWG, a major serviced office provider, which has heralded a move away from being a capital-intensive space provider to a capital light franchise model.
From a sale perspective, we exited On the Beach, the online holiday operator. Whilst we like the company’s business model, we’re concerned about the outlook for the UK short-haul holiday market with the inexorable drag from an extended BREXIT. We took a profit in Clipper Logistics, which rallied very sharply after our initial purchase before we had built up a meaningful holding. We also top sliced the Fund’s holdings in Boku, JTC, Keystone Law and Future on the back of strong share price moves and Shield Therapeutics, which has now nearly doubled since our purchase in February.
Looking forwards, the market remains as hard to read as ever with political issues clouding normal economic considerations, with trade wars, BREXIT coming back to the fore after the EU elections and the upcoming Conservative Party leadership elections raising the perceived level of political risk. For now, momentum stocks, which sold off so sharply in Q4 2018, are back in vogue with some commentators suggesting it doesn’t matter what price you pay for growth with reasonable visibility. The valuation gap between these stocks and unloved UK and industrial cyclicals continues to polarise to quite extreme levels. From the Fund’s perspective we continue to look for cash generative companies and growth at acceptable valuations, taking advantage where we can of the high levels of volatility we are seeing across the market.