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

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

Corporate reporting season was in full swing during July, with the market looking for further clues as to how Covid is affecting various companies and sectors. Results were, as expected, varied, with some businesses heavily affected by Covid restrictions, while others, able to adapt quickly to a work from home model, saw only limited effects. US-China tensions escalated somewhat over the month, and this, combined with some poor macroeconomic data, served to curb investor demand, leaving European indices lower over the month.

The fund was down slightly over the month. The results season was understandably mixed for our holdings. We were pleased to see the resilience of business models generally. However, some investments in a diverse portfolio were always going to be affected more significantly by Covid restrictions in the second quarter. We are confident that our more affected investments have the necessary balance sheet strength to endure these tougher times and emerge strongly going forward.

On the positive side, very reassuring updates from a number of our IT service companies led to very strong share price performances, with Ordina, Sword, Infotel and Knowit all enjoying double digit share price performances over the month. Elsewhere, Kaufman and Broad, a French housebuilder was the strongest performer in the fund over the month, rising on news that a rival firm had acquired over 13% of Kaufman’s equity. Rejlers and Arcadis, two technical consultancy holdings, also performed well following positive updates. Signify, which specialises in lighting, also enjoyed a positive share price reaction to reassuring results.

On the negative side Barco, a technology company with exposure to the cinema and entertainment business had an understandably mixed trading update, and the shares were weaker despite the company having a very strong net cash balance sheet and seeing some signs of recovery. Hexpol, an industrial polymers business with exposure to the Automotive industry was also weak. Hexpol continues to generate healthy levels of free cashflow, and also has a very strong balance sheet. Relx, which focusses on legal and scientific publications, was also weak as its Exhibitions business, although small in comparison to its other business areas, was heavily affected by global lockdowns.

Over the month we sold our position in ST Microelectronics. Our semiconductor holdings have performed very strongly and we decided to lock in some profits.