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

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

It was a difficult month for European markets, with main indices falling heavily over the month, as investors began to price in a likely recession in the Eurozone. July and August will provide some company level information on how businesses are coping in the current environment as we head into second quarter results season.

The fund was also down over the month. Despite the difficult environment for share prices, there were some positive contributors. Prosus, which has a significant holding in internet giant Tencent, announced that it would sell down this holding in order to fund share repurchases, which was taken positively by investors. Greenvolt (biomass plant operator plus solar/onshore wind developer) was also a notable outperformer over the month as it announced ambitious growth plans. Elsewhere, a number of the fund’s more defensive holdings such as Roche (pharmaceuticals) and Essity (consumer staples and wound care) held up well in difficult markets.

The main detractors from performance largely came from businesses which are perceived to be cyclical. These included Siemens (industrial conglomerate), AMS Osram (semiconductor chip manufacturer), Signify (lighting) and Recticel (insulation). We have generally been using share price weaknesses to top up our holdings. The fund has significantly lower cyclical exposure than European markets, and we believe that there are strong stock specific reasons for these businesses to be less affected by cyclical factors, and to weather any upcoming economic turbulence well.

Over the month, we initiated holdings in Brunel (human resource supplier to the oil and gas exploration and production sectors) and Sandvik (equipment supplier to the mining sector).

The range of potential macroeconomic and geopolitical outcomes is particularly wide right now. We believe that focussing on cash generation, coupled with strong balance sheets will be more relevant than ever in this challenging, but increasingly opportunity-rich environment.