August is typically a quieter month for markets, and there was no change to the most recent trends we have been seeing. On a global basis, large cap growth names dominated the list of top performers and, in our universe, small and mid-cap UK growth stocks have continued to perform well. From an economic perspective, the recovery from the lows of spring is ongoing, with positive PMIs and production volumes. This has been supported by those interim statements we have seen from companies thus far, with analyst forecasts set at the height of the pandemic now appearing overly cautious. However, there is increasing evidence that the recovery is K-shaped, with certain industries, such as travel, continuing to be hampered by government regulations aimed to stop the spread of COVID-19. Also of concern is UK employment levels, with the government’s successful Job Retention Scheme winding down at the end of October. On the Brexit front, negotiations continue to rumble on with little sign of progress. Whilst we are a UK fund, the majority of earnings in our underlying portfolio companies are derived overseas, which we hope will provide some resilience if we end up with a “Hard Brexit”.
From a portfolio perspective, our best performer was SDL, as they announced an all-share merger with RWS to create the world’s largest provider of language services and technology. We also saw a strong contribution to performance from some of our technology stocks, such as Dotdigital and IMImobile, as there was strong buying demand after good updates in July. There was no obvious theme in our poorer performers, with River & Mercantile, Somero and Equiniti all weak in the month. On the trading front, we added to a number of holdings including IG Design, on resilient FY results, Augean, on weakness in the share price, and Bodycote, as we continued to build our holding to a more meaningful position. We also trimmed some of our better performers such as XP Power and Dotdigital on strong price rises and exited our holdings in The Pebble Group and Convatec.