European equity markets were fairly volatile over the month, ending up largely unchanged. Investor focus began shifting back to the rising number of Covid cases generally, and concerns about the effect of these on the early stages of economic recovery.
The fund was slightly up over the month. The biggest positive contribution to performance came from one of our Industrial holdings, Signify, which is the former Philips Lighting business. Signify has recovered strongly in recent months and is starting to gain the attention of environmental investors, given its credentials as an energy-saving business. It remains very attractively valued, despite the recent outperformance. CPL Resources (temporary and permanent recruitment) was also up strongly, following the publication of results which reassured the market. With net cash equating to almost 1/3rd of its market capitalisation, and strong free cash generation, we continue to believe that CPL is materially mispriced. Hexpol, a Scandinavian based global polymers business has also recovered strongly in recent months. Here, we decided to exit the holding as the valuation now appears quite full.
Banks continued to be under pressure in the month. The return of concerns over economic recovery and the challenge of making money in a low interest rate environment were at the core of this underperformance. We continue to see Svenska as a quality bank, with a strong track record of delivering returns on equity in excess of 12% per annum. We own ING primarily due to its core strength as an online challenger bank and would cite the recent agreement with Amazon in the German market as an example of these strengths. Nevertheless, the banks can and do get caught up in short term sentiment – we continue to back both.
As well as the previously mentioned sale of Hexpol, we also exited Prosus, following strong share price performance in recent months.