Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
MI Chelverton European Select Fund – Monthly Manager Commentary – June 2018

MI Chelverton European Select Fund - Monthly Manager Commentary - June 2018

European markets were fairly directionless during June, though the general sentiment feels cautious.  Macro issues such as the Trump tariff situation continue to rumble on, leaving a general sense of unease.

The fund was slightly lower also, during the month. There was little to note in terms of performance, though given the general comments about market caution, it was no surprise to see companies like Sanofi, Roche and Fresenius SE all posting positive returns, as investors sought safety in non-cyclical/defensive areas like pharma and medical technology, while more industrial/cyclical names such as Kion and Inwido sold off.

In terms of investment activity, we purchased three new holdings. Tessenderlo is a diversified company whose main business is agricultural fertilisers. The company has a high single digit free cashflow yield, and a very significant management stake. Novartis almost made it into the portfolio at launch. Following recent share price weakness, the free cashflow yield of 6.5% plus a 4% dividend yield for very stable cashflows looks attractive. Bolsas y Mercados Espanoles is the operator of the Spanish stock exchange. It is ungeared, with a 6% free cashflow yield, and a 5% dividend yield. There is the added optionality of M&A in a consolidating industry. We decided to switch out of a couple of Scandinavian holdings – selling Veidekke and Svenska Handelsbanken. We also sold Dormakaba.

The net effect of these transactions provides more diversification for the portfolio, plus an average increase in margin of safety of 14% for the purchases versus the sales.