The equity markets continued their more positive start to the year into February, with optimism surrounding a trade deal between the US and China and signs that, despite little indication of what manner of deal with the EU they would support, Parliament would not support a “No Deal” Brexit. The latter helped drive a strengthening of the pound, which supported an outperformance in the small and mid-cap area of the market in which we invest. However, whilst markets are more optimistic, we will need to see more macro certainty, whether a signed trade deal or a sensible outcome for Brexit, in order to sustain the current market rally and see an improvement in ratings for UK stocks.
From a performance perspective, our most significant contributor was Future, the specialist media platform, announcing that they expected their H1 outcome to be significantly ahead of market expectations. Other notable performers were RPS (recovering from an oversold position when they released in-line results), Dairy Crest (subject to an agreed cash offer from Saputo, a Canadian dairy company) and Clinigen (which made a transformational acquisition of the US rights to cancer drug Proleukin). On the negative tack, Proactis warned as it saw a lower level of customer retention and a deterioration of its pipeline in the US and Europe, resulting in a significant cut to expectations. During the month we continued to add to our positions in Euromoney and Restore, and restarted positions in GB Group, as they raised funds to accelerate their US growth by buying IDology, and Clipper Logistics, which had seen a significant de-rating on earnings downgrades and poor sentiment towards the retail sector but which we believe looks very attractive at its current level.