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

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

A difficult month for the Market and Fund as investors were unsettled by the high profile problems at and subsequent takeovers of Silicon Valley Bank and Credit Suisse, with fears of wider contagion in the banking sector causing uncertainty and driving up the risk premium for equities. Whilst there’s a consensus that inflation will fall sharply in the second half of this year, there’s also some unease about the underlying strength of the US economy, which may mean that interest rates will remain higher for longer than previously hoped. We need to see clear evidence of inflation declining, before interest rates can start on a downward trajectory; a scenario we expect would trigger a rebound in Small and Mid cap growth stocks.

At the individual stock level, holdings with a growth bias continued to underperform. Spirent (mobile network testing solutions), was the Fund’s largest negative contributor, declining when it reported that its telephone network customers were deferring spend on their 5G networks in response to cooling consumer demand. Other Technology and Media stocks such as Future, Accesso Technology and LBG Media performed poorly in the absence of any negative newsflow, highlighting investor’s lack of appetite for growth stocks generally. On the positive side Big Technologies performed well after reassuring results, Mortgage Advice Bureau rose having reported a pick-up in new mortgage enquiry levels and Alphawave (semiconductor designer) rallied off recent lows.

During the month we continued to add selectively to a number of our preferred growth names, topping up holdings in Bytes, Auction Technology, Spirent and Craneware on the back of share price weakness. We raised money by reducing holdings in less economically correlated stocks such as Convatec, Balfour Beatty, Premier Foods and Conduit, which had all held up relatively well. We also pared back holdings in Alliance Pharma, Elementis, MP Evans, and Vesuvius. Overall, as managers we continue to increase the Fund’s weighting to what we see as quality growth stocks at attractive valuations, taking advantage of the current market volatility. With the potential backdrop of declining inflation and the peak in the interest rate cycle coming through in the second half of 2023, we believe this strategy will leave the Fund well placed to perform when small and mid cap growth stocks return to favour.