European markets were weaker during March, with the MSCI Europe ex UK Index falling 3.6% in sterling terms, or 2.2% in local currency terms. Markets continue to suffer as a consequence of a number of macro uncertainties. This includes the threat and consequences of US trade sanctions, Russian diplomat expulsions and fears of rising inflation. March is typically a quieter month in terms of company reporting, hence there was little in the way of support from specific company newsflow.
The MI Chelverton European Select Fund launched on 6th March. We have constructed a portfolio with 46 holdings, and have been effectively fully invested since day one, adding to holdings as we receive new monies into the fund. The portfolio has a small and mid-cap bias, with over 40% of the holdings having a market cap below €5bn Euros. We believe that one of the effects of MIFIDII will be to significantly reduce sell-side coverage of smaller companies and we view this as an exciting opportunity.
In light of likely continued volatility of markets, we firmly believe that having a robust process which delivers a value anchor for our investments will enable us to achieve good long-term performance. We have a strong reserve list of potential investments and creating this healthy competitive tension for places within the portfolio is a key output of our process. Structural change, driven mainly by technological development is an ongoing, and accelerating feature of many market areas. Our process is designed to steer us away from these types of businesses which are facing significant structural challenges, but where mean-reversion hopes are still embedded in the valuations.