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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – August 2022

MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – August 2022

After the short-lived rally in July, the Fund and market at large once more came under pressure in August, with investors unnerved by the Fed’s increasingly hawkish stance on interest rates as it tries to get on top of an overheated domestic economy and by the worsening cost of living crisis in Europe caused by the energy price shock stemming from the war in Ukraine.

Unsurprisingly given the backdrop, cyclically exposed stocks namely SigmaRoc (building materials), TT Electronics (industrial) and Future (consumer advertising and ecommerce) were the Fund’s main performance detractors, albeit in the absence of any negative trading updates. Revolution Beauty fell very sharply after a profits warning, significant cash outflow and delayed audit. On the positive side, RPS was the largest contributor to the Fund’s performance after announcing a recommended take-over offer at a significant share price premium, continuing the theme of trade and private equity buyers taking advantage of depressed UK equity valuations and the weakness in Sterling. So far this year, the Fund has seen recommended offers for Ideagen, Ocean Outdoor, Homeserve and Euromoney. Elsewhere, Globaldata and TP ICAP rallied on the back of encouraging results and Devolver Digital regained some of its earlier losses as one of its video game releases was well received.

On the trading front, we raised liquidity from a wide range of stocks, taking profits in energy related holdings, namely Kistos and Diversified Energy, and also reducing positions in less economically correlated holdings which have held up well in the sell-off, such as Alliance Pharma, where we have some concerns over its second half profits weighting, TP ICAP and Balfour Beatty. We also took advantage of the rally in some holdings on the back of positive trading newsflow, namely Globaldata, Spirent and Volex, to lock in some gains. Amongst the Fund’s more poorly performing shares, we significantly reduced holdings in Purplebricks, Saga and exited the remainder of our holding in ActiveOps, a workforce optimisation business whose shares have performed poorly since its IPO in 2021. On the buy side, we added selectively to holdings on valuation grounds following recent share price weakness, notably Inchcape, Luceco, Tatton, Craneware and SigmaRoc.