European markets were ahead over October. Supply chain concerns across multiple sectors remain, coupled with inflationary pressures appearing to build. However, European markets generally looked beyond these macro issues and finished the month on a positive note. Stylistically, growth outperformed value.
The portfolio had a positive month in performance terms, but more muted than broader European indices.
Positive contributions came from IT service holdings Proact IT and Bouvet. Also strong over the month was D’ieteren (windscreen replacement) and Recticel (insulation and technical foams). The latter has agreed in principle to dispose of its technical foams business in response to an unwelcome takeover offer.
In terms of detractors to performance, Post NL (Dutch postal service) was weak, though on no specific news. Signify (lighting) produced a disappointing trading update, citing some supply chain issues, but confirming that demand remained very strong. We continue to see Signify as a materially undervalued company with a double digit free cashflow yield, and good long term environmental drivers. Staples such as Unilever and Danone were also somewhat weaker, on cost inflation concerns.
During the month, the fund initiated a new holding in Serviceware. Serviceware has developed a suite of software products which enable clients to monitor and evaluate value-for-money for IT projects and resource investments. Profitable, cash generative and majority owned by its two main directors, it is trading at a sharp discount to peers, largely as a result of poor coverage post IPO due to Mifid II. Serviceware is another example of why we think there is a structural opportunity to invest in overlooked smaller companies in Europe.