Markets started off the New Year strongly but this early enthusiasm petered out towards the end of the month as investors started to focus on the implications for strong global economic growth on inflation and interest rates to the extent that, at the time of writing, we have seen a sharp sell-off in the market followed by heightened levels of volatility, the extent of which has not been evident for some time.
The Fund itself performed quite strongly in January. The biggest contributors were two UK financials, namely Liontrust Asset Management, which reported a strong quarter for fund flows, and Tatton Asset Management, the financial advisor services provider, which came to the market last summer. On the negative side Games Workshop, dotDigital and Immupharma all gave up some of the strong gains they made last year.
During the month we added to our UK consumer exposure, topping up relatively small positions in Topps Tiles and DFS Furniture, which have performed poorly since BREXIT, but which are now facing much easier sales comparisons going forwards, and in our view look attractively valued given their dominant market positions. On the same theme we also bought a holding in B&M European Value Retail, the expanding limited range household goods retailer that has managed to keep growing its like-for-like sales, despite the difficult consumer spending environment, thanks to its value-for-money offering.
We started two more holdings, adding TT Electronics, an electronics component group, which recently disposed of its low margin automotive components business, and Zytronic, which designs and manufactures touch sensor technology for a wide range of niche touch-screen applications.
The recent stock market fluctuations have been driven by “top down” macro factors, but set against this we believe the corporate “bottom up” earnings profile of our portfolio remains robust and broadly supportive of current valuations.