European markets were weaker during September. The inflation debate once again became a prominent topic. Also, worries concerning financial exposure to Evergrande, a heavily indebted Chinese property developer, dampened sentiment. Further, there are increasing signs of supply-chain disruptions affecting multiple sectors. Faced with these macro concerns, market progress stalled during the month.
The fund was also lower over the month.
Positive contributions came from Zardoya Otis, a Spanish escalator and elevator company which received a bid approach from its parent company, Otis. Banca Ifis (Italian bank) was also stronger on continued optimism surrounding a change to the operating structure of the business. Kinepolis (cinema operator) enjoyed a strong month as studios confirmed a strong line up of new film releases. JDC, a German based Insurance platform business, also contributed positively over the month following the announcement of a strategic stake being taken in the business by a new client.
Detractors from performance came from a varied selection of holdings, but with little significant newsflow to mention. These included Caverion (Scandinavian building services), Tietoevry (IT services), Novartis (pharmaceuticals), and Sword Group (IT services).
We took advantage of weaker share prices to add to a number of our positions. We also took advantage of the pull back in certain high-quality companies which we had admired as businesses but hitherto viewed as being too expensive, to add new positions - Kone (elevators and escalators) and Knorr-Bremse (rail vehicle systems and transport vehicle systems). Both businesses have excellent long-term prospects and have significant repair and maintenance aftersales businesses providing good visibility of profits. After recent share price weakness, both companies have above market free cashflow yields, an attractive entry point to invest.
We exited our holding in Artefact during September, following the takeover of the company by Ardian. We also sold out of ASM International as the stock had run out of valuation support.