After a disappointing June, the Fund enjoyed a much better month from both a relative and absolute returns perspective. Several factors contributed to this outperformance. Two stocks, RPS and XPS Pensions, which fell sharply on profits warnings last month, recovered some of their losses. Future, which had sold off sharply on the back of a negative research report in June, rallied after a positive trading update. Similarly, Quixant performed strongly after a reassuring trading update, bringing to an end a prolonged period of share price weakness. Unusually, after seeing no takeover bids for portfolio stocks in 2018, three of the Fund’s holdings - Amerisur Resources, Proactis Holdings and Accesso Technology - received approaches and have all put themselves into ‘Formal Sale Processes’. On the negative tack, Tyman’s shares fell back on the publication of disappointing interim results and Synthomer’s shares were weak in the aftermath of its rights issue.
During the month, we added to Synthomer, by taking up the Fund’s rights entitlement. We also added to IMIMobile by participating in a placing to help finance a US acquisition. We topped up the Fund’s holdings in SThree, SDL, Avon Rubber and Somero Enterprises on the back of share price weakness. We bought back into Severfield, the UK market leading structural steel business, which we had sold out of after the BREXIT vote. We believe the shares offer good value on the back of the company’s dominant domestic position with a material growth opportunity being provided by its Indian joint venture, which after years of investment now seems to be gaining real traction. We also started a holding in D4T4, a rapidly growing customer data and interaction software business for large scale global enterprises in the banking, airline and retail markets. On the sell side, we reduced our holdings in Restore, Porvair, Learning Technologies and Brooks MacDonald, largely on valuation grounds.
Looking forwards, there is very little clarity on the overall outlook with ongoing BREXIT and political uncertainty in the UK and signs of slowing global GDP growth being offset by easing monetary policies. The latter factor should at least help make equities a relatively attractive asset class, notwithstanding their current volatility, which in our view creates just as many if not more opportunities than it does challenges for the Fund.