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

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

European markets made further gains in June. The rotation into more value-oriented companies continued to drive performance in the early part of the month, but there was a less obvious stylistic bias during the latter half of the month’s gains. The market appeared to be undaunted by issues such as the re-escalation of coronavirus in a number of countries, nor the US/China trade war rhetoric which has also begun to resurface.

The fund enjoyed another month of strong gains, both relative and absolute. The forthcoming reporting season should give further indications of how well companies have fared during the covid-induced slowdown.

Noteworthy performance came from our semiconductor holdings, ASMI and BESI, following several positive market updates from companies operating in this area. Signify, the former Philips lighting business also continued to recover strongly, regaining further ground after the unwarranted sharp sell off earlier in the year. Proact, one of our IT service companies specialising in data storage, had a positive market update, confirming that trading had been strong, and guiding forecasts upwards, leading to a strong share price reaction. Bayer also announced a settlement of its Roundup weedkiller lawsuits, removing much of the uncertainty which has hung over the stock for the last year or so.

There were only a handful of companies which were down in absolute terms over the month, and none were down significantly. Reply (IT services) was weaker following a small placement of founder shares, and D’ieterin, which specialises in auto windshield replacement, was down a little over the month, giving back some of its recent gains.

The fund purchased Rejlers during the month. Rejlers is a Nordic-based technical consultant with strong market positions especially in the area of energy transmission. The company has a rich history, but in recent years, progress has stalled. A new management team was recently put in place, making positive changes. The new CEO comes with a strong industry pedigree, has invested significant amounts of his personal wealth in Rejlers shares, and the prospects for the company are potentially very exciting. The valuation is firmly in our sweet spot with a free cashflow yield exceeding 6% and excellent long term growth prospects.

We continued to consolidate our financials holdings, exiting Nordea. We also consolidated our Norwegian salmon farmers, exiting Salmar, following a strong run in the share price and topping up Grieg Seafood, where we see better value.