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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – August 2023

MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – August 2023

The normally quieter month of August was a poor one for equity markets globally, with the market continuing to be driven by the latest data from the USA. In August, a downgrade of the US’ sovereign credit rating, higher than expected US Treasury borrowing requirements, and concerns that rates would need to stay higher for longer drove “risk-off” behaviour. This was compounded by continued weak data from China, which has been accompanied by fairly limited stimulus from the Chinese government. However, markets recovered some of their decline as the month closed, with a higher than expected rise in US unemployment, reducing the probability of further rate hikes in the US. In the UK, we saw another rise in the interest rate, accompanied by a decline in the inflation rate from 7.9% to 6.8%. From discussion with companies, the majority are seeing input costs either stable or declining and a much more benign labour market, which gives us confidence in the downward trend in inflation.

At an individual stock level, our best performer was Blancco Technology, as it was subject to a recommended offer by Private Equity at a 25% premium. We have seen a return of private equity bidders in recent weeks and expect this trend to continue whilst valuations remain depressed. Also strong were Randall and Quilter, where there was no newsflow, and TT Electronics, as they announced in-line interim results. Our main detractor in the month was Tremor International, as they issued a profit warning, driven by lower advertising spend by their major advertisers and agencies, and longer decision making for new sales given economic uncertainty. Also weak was SigmaRoc, our largest holding, despite an in-line trading statement, and LSL, as they warned given the continued deterioration of the UK housing market.

On the dealing front, we added to CAB Payments, Alpha Financial Markets Consulting, Somero and DotDigital on weakness. We raised money by selling down our holdings in Renew, TT Electronics and LSL.