monthly manager commentary
Confirmation the UK would begin re-opening the economy on schedule saw the market push higher in the early weeks of April, with Consumer stocks particularly benefiting but broad-based optimism creating a rising tide for all ships. A steady trickle of positive Q1 updates towards the end of the month kept the momentum going, although earnings upgrades tended not to result in commensurate share price rises. While this suggests some expectation has started to creep into current valuations we believe that companies are keen to keep some powder dry for later in the year which will support continued improvement in investor sentiment towards the UK. This should in turn underpin asset prices. As the global economy restarts, investor attention has turned towards inflation, with the rise in commodity prices and the US long bond yield seen as an early warning sign, although central banks seem content that the upward pressures on CPI are transitory for the moment. A modest level of inflation has historically been a positive for value investors and we are continuing to see increased interest in our investable universe as the market moves into the next phase of the recovery.
In the last month at the stock level there was no discernible theme to either our best or worst performers. Morgan Sindall bounced sharply on the back of a positive trading update, with its Construction and Infrastructure divisions performing well and Fit Out showing very strong momentum, allaying fears in the market that it would suffer from a lack of spend on office fit outs as working practices change post the pandemic. Levels of corporate activity continue to increase with Elementis again subject to a bid approach while Vitec and Diversified Energy Company (previously Diversified Gas & Oil) both made attractive acquisitions. Diversified continues to prove out its business model, making its first acquisition outside of the Appalachia region. The deal resulted in double digit upgrades to estimates, which we expect to flow through to increased dividends in due course. Our poorer performers were also a mixed bunch. Bodycote and RPS are exposed to end markets which are attractive in the medium term but are going to be slower to recover post pandemic while more uncorrelated names such as Direct Line and Rathbones did not participate in the wider market rally.
Results season went into full swing in March and in general companies were able to meet or beat expectations. This was undoubtedly aided by the fact that forecasts were heavily cut at the height of the pandemic and had been upgraded more gradually, however it was enough to maintain the positive momentum in the market. The budget was largely a non-e[…]
As investors look through lockdown to a period of economic recovery, the debate has moved increasingly to one of ‘value’ versus ‘growth’. It is well documented that growth as a style performed relatively well through the pandemic and commentators have been searching for a catalyst that may start to close the performance gap moving forward. To this […]
After a positive first week, the market gave up its early gains as the rest of the month was dominated by the vaccine row with the EU and increased fears over mutant virus strains culminating in the adoption of a new UK quarantine regime. The relative success of the domestic vaccine roll-out continues to underpin recovery hopes for our UK centric s[…]
December was dominated by the ever-changing posturing surrounding a deal or no deal trade agreement with the EU as the timetable was extended. It was ultimately resolved as an agreement was signed just before the year end to the general relief of financial markets. Whilst we view this as good news for sterling and for domestic equities, there will […]
The boost given to ‘value’ stocks by the announcements of viable Covid vaccines continued through the month and importantly it was across all market cap bands because for the bounce to be sustained, fund flows need to be directed to large cap ‘value’ as well as small and mid-caps. Looking at the valuations of companies within the portfolio, we beli[…]
After a policy of tiered lockdowns in England the move to a full national lockdown was ‘leaked’ at the end of the month. Interestingly the share prices of some of our more UK centric consumer stocks that are directly affected such as Marstons and Restaurant Group were unmoved suggesting that a good deal of bad news is already being priced in. They […]
Towards the end of the month, the Fund suffered as new restrictions were imposed by the government, including the 10pm curfew. The adverse effects on the hospitality trade needs no explanation but share prices fell across the board as investor sentiment turned negative in the face of a constantly changing set of rules. Whilst this is not a politica[…]
Our short term performance continues to be driven by ‘growth’ versus ‘value’ sentiment in the market and, as more companies appear to be trading better than the most bearish ‘guesstimates’, we are starting to see a bit more commentary on the valuation gap between the two. Uncertainty persists for a lot of companies however as to how much of the tra[…]
The last month saw a number of companies start to make dividend decisions on a more ‘informed’ basis with respect to their business prospects. Since the start of the crisis, many Boards have understandably assumed the worst and, at the time of most uncertainty, made decisions based on extremely bearish ‘what if’ scenarios. The old stock market adag[…]