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MI Chelverton European Select Fund – Monthly Manager Commentary – October 2018

MI Chelverton European Select Fund – Monthly Manager Commentary – October 2018

European markets were off sharply over the month of October. There were many issues, predominantly macro-related which fuelled this move down. Concerns over interest rate rises, especially in the US, dented confidence globally. Fears over further trade war acceleration was also an issue. Fears that corporate earnings may have peaked, and concerns over global growth generally were also apparent in market commentaries. Finally, unstable domestic political situations in the Eurozone generally also weighed on sentiment.

The fund was down over the month. However, there were some positive share price performances worth highlighting: Our recent purchase of BE Semiconductor, on a very attractive valuation, was up strongly. Grieg Seafood continued to perform strongly. Given this, and the now elevated valuation, the holding was sold. ICF group, the financial services business also enjoyed a strong month in terms of share price performance. On the negative side, Siili Solutions, an IT services business warned that short term profits would be affected by poor execution of International expansion. We believe that these issues are short term and continue to see the valuation as being very attractive. Dometic, the supplier of products to the recreational vehicle and marine markets was also down on the month, after a fairly bland trading update was taken poorly by the market. Post NL was also weak over the month, despite the Dutch mail and parcels company announcing positive news regarding cashflows. We took advantage of the weakness to add to this holding.

In terms of investment activity, we took profits in Greig Seafood as mentioned above. We also took profits in Glanbia, the nutritional products specialist. We took the decision to sell Naturhous after a review of recent trading updates left us nervous about the prospects for the Spanish diet franchise business. We took advantage of weak markets to add to a number of our holdings, and made three new purchases, buying BE Semiconductor Industries, Renault and Randstad.

Following market moves, plus the portfolio activity, the fund now has very attractive valuation characteristics. The 2019 PE is 11.6x, the current expected dividend yield is 4% gross and the average free cashflow yield is 6.6%.