European equity markets continued to advance during February. The fourth quarter results season continues, and results have generally been quite reassuring, especially in areas such as Aerospace and Defence buoyed by potentially significant increased spending in this area across Europe. The Defence holdings within the portfolio all feature within the top contributors to performance over the month. Smaller companies continue to lag in performance terms in Europe versus their larger counterparts. However, we are cautiously optimistic that the recent strong performance of the broader European indices could permeate down the market cap spectrum over time.

The fund posted a positive return in February, though lagged broader indices due to the aforementioned underperformance of smaller companies.

Three of the funds’ top performers over the month were Defence holdings. Mildef (ruggedised IT supplier) and 4C (Defence software) both posted positive results, while Dassault Aviation, yet to report, also gained over the month. Rejlers (infrastructure consultancy) rose following a positive trading update, while Danieli (low carbon emission steel plant supplier) rose as it announced a collaboration with Metinvest, a Ukrainian steel and mining operation.

Arcadis (environmental consultant) and Bouvet (IT services) both had negative share price reactions to what we felt were solid results. The funds’ semiconductor manufacturing equipment holdings, ASM International and BE Semiconductor were also weaker over the month, as the broader semiconductor sector was under pressure.

The most significant activity over the month was our sales of Roche and Siemens. These stocks have been held in the fund since inception and have delivered excellent returns. The sale decision was driven by the continued underperformance of smaller companies in Europe and the opportunities which this situation is throwing up. Our large cap exposure in the fund is now 6.5%, the lowest it has been since launch.