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MI Chelverton European Select Fund – Monthly Manager Commentary – August 2020

MI Chelverton European Select Fund – Monthly Manager Commentary – August 2020

European equity markets posted positive returns over August, despite the continuation of US-China trade tensions. More economically sensitive areas of the market continued to make gains, as investors continued to digest information from the interim results season, which is now largely complete.

The fund performed strongly over the month. Performance was largely driven by smaller companies within the portfolio as a result of generally very robust interim results. There were few outright negative contributors to performance, but these generally came from our more defensive or less economically sensitive holdings.

There were strong gains from a number of our smaller IT service businesses, including Siili and Knowit. There have been a number of bids in the sector, generally private equity backed management buyouts, which has started to pique investor interest. We remain very positive about this area of the market, believing that these companies offer the opportunity to be invested in businesses with cheap, growing cashflows and structural tail winds. To this end we have added a further two holdings over the month – Adesso, a fast-growing German IT consultant and Novabase, a Portuguese consultant which offers a good combination of growth and also a committed high dividend pay-out. Elsewhere, Rejlers, a Scandinavian based technical consultant also posted strong share price gains over the month.

As previously stated, there were few outright negative performances from our holdings. Less economically sensitive companies such as Unilever, Sanofi and Danone lagged the market in terms of performance. Kaufman and Broad, our French housebuilding holding, gave back some of its strong gains over the previous month as the market switched focus away from recent stake-building in the company.

Over the month we sold our positions in Adidas and Kardex, following strong share price performances from both in recent months, leaving valuations less attractive. We continue to admire the business models of both, but for now we can see more attractive opportunities elsewhere.