Although the policy tightening plans of the Fed have been well documented, the US led equity markets lower as worries over trade tariffs caused investors to assess the effect on corporate earnings expectations of a widespread trade war. Despite the US economy growing strongly, business confidence has been knocked as a result of these trade fears. As share prices fell at home, the apparent compromise with respect to the Brexit transition period served to calm investors worst short term concerns and manufacturing and employment levels continued to provide some cause for optimism. Dividend payments remain robust. Interestingly whilst corporate activity levels are picking up, the IPO market has proved to be quieter than we would have expected largely due, we believe, to increased market volatility.
The one standout feature of the results season was the relative weakness of the retail sector as the effects of soft underlying trading were compounded by adverse weather conditions. Relatively poor performers in the month included N.Brown, Halfords, McColls and Debenhams. In addition Moss Bros fell heavily after a ‘self inflicted’ downgrade caused by supply problems. De La Rue also fell after the loss of the high profile British passport contract and we have topped up our holding during the sell off. On the positive side Fenner was the subject of a cash offer and we have just sold our holding to reinvest. We have, however, retained our position in another bid target, Fidessa, as they recently announced that they are in talks with a number of new potential suitors. FDM performed well after they released a very good set of results accompanied by an excellent dividend increase, and Go Ahead recovered from an ‘over-sold’ position. We supported placings by Tyman and Flowtech Fluidpower as they made acquisitions and we expect there to be an increased appetite for equity funding as we move through the year.