Broader European indices were in positive territory over the month. July saw a busy month in terms of company reports for H1 which were mixed. Smaller companies outperformed the broader indices for the first month in a while.
The fund was down slightly over the month, and we have had a frustrating start to the reporting season.
Some of our poorer performers have a degree of cyclicality in their operations and have either warned about the short term, or the market is worried about them warning. Having analysed the companies relative to our long-term investment cases we are happy that the cases remain intact, and we expect the market to start to look through what we perceive as temporary weakness. We have seen this in certain companies. For example, Signify (lighting solutions) - results actually resulted in a downward revision to estimates, but the market is now looking at future recovery potential, believing that the low point in the cycle is close to passing, hence a positive share price performance.
The biggest detractors from performance were as follows. Eurogroup Laminations (EV parts supplier) was weak, following a broker downgrade ahead of maiden interim results. AMG Critical Materials (lithium and vanadium producer), which had been a top performing holding over the past year, was weaker following a cut to short term guidance largely because of technical issues at one of its production facilities. Siili Solutions (IT services) warned that guidance would not be met due to a more challenging market environment. TGS (seismic data production) also endured a negative share price reaction to its results. We have topped up three of these four detractors.
Positive contributions to performance came from Cyberoo (cybersecurity services) where the share price advanced after a period of consolidation. Our semiconductor equipment manufacturers, ASM International and BESI also enjoyed strong performances, following results which were well taken by the market. Visiativ (IT services) also produced results which were taken positively, as did the results of Signify (lighting solutions) as noted above.
As we have written elsewhere, this is a time to focus strongly on process and long-term fundamentals. Balance sheets remain robust, and free cashflow/growth equations remain very attractive. As a result, we have used short term weakness as an opportunity to recycle capital into a number of our higher conviction but recently underperforming investments, at what we are confident will prove to be very attractive levels.