Bath/Head Office:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
MI Chelverton European Select Fund – Monthly Manager Commentary – July 2022

MI Chelverton European Select Fund – Monthly Manager Commentary – July 2022

European equity markets rebounded strongly in July. The rally was generally driven by macroeconomic factors, with investors beginning to believe that headline inflation may be peaking, leading to less aggressive rate hikes from the ECB. The market rally was set up by the pessimistic sentiment towards European markets generally in recent months. It was notable that growth significantly outperformed value as an investment style over the month.

The fund was up over the month, but failed to keep pace with broader indices, given the sharp outperformance of growth stocks. Second quarter results season has been fairly mixed. Some companies are giving very much “business as usual” updates, with demand holding up and inflationary factors not being an issue. Others remain affected by supply chain issues and are seeing some cost pressures.

Positive contributions to performance over the month came from a variety of holdings and industries. Visiativ, Atea, Proact and Bouvet (all IT services companies) performed strongly after producing positive results. ASM international (semiconductor equipment producer) was also a good performer over the month, following results which were ahead of expectations. Rejlers (technical/environmental consultant) and Greenvolt (alternative energy producer) were also notable positive contributors over the month.

Detractors from performance included Lastminute (online travel company) where a governance issue emerged. We exited the holding on learning the news. Vallourec (iron ore mining and pipe producer for oil and gas sector) was weak on the back of mixed results. We felt that the market reaction was unduly harsh, given that the main issue was caused by a landslide at their Brazilian mine, which will be remedied later this year. We have used the weakness to add to our holding. Amadeus Fire (personnel and training services), Innofactor and All for One (both IT services) were also weaker following lacklustre results. We have been taking advantage of share price weakness to add to all these holdings.

There is an element of deja-vu looking at the significant outperformance of growth over value during the month. The top 10 index contributors in the month have an average free cashflow yield of 3.7%, some 50% lower than our fund, which has a current free cashflow yield of 7.4%. We remain confident that we have an exciting portfolio, which is attractively valued, and will, as ever, stick to our process when markets are volatile.