Apart from a period of softness at the beginning of the month, the Fund and wider market continued to rally in May, with investor confidence growing as economies around the world emerged tentatively from lockdown. The healthcare sector was the primary driver of the Fund’s performance in May with Clinigen, its largest holding, returning 21% and notably strong performances from Renalytix, Amryt Pharma and EKF Diagnostics as well. Future (media), the fund’s second largest holding, made the largest individual contribution to the Fund’s performance returning over 33% in the month.
During May, we progressively reduced the Fund’s cash position from 10.3% to 6.3%. We supported a fund raising by Accesso Technology, the online ticketing business for theme parks and events, to strengthen its balance sheet for a period of no trading. We added to a broad range of existing stocks which we felt remained undervalued across the construction (Tyman, Severfield, VP), media (Ascential, Euromoney, Next Fifteen, Tremor International) and industrial (Elementis, Trifast, Bodycote) sectors as well as building up holdings in Inchcape, RPS and Brooks MacDonald. New investments included Premier Foods, where new management are reviving a collection of classic British grocery brands such as Oxo, Ambrosia and Mr Kipling. We also bought a position in Xaar, a market leader in industrial inkjet printing technology, something of a fallen star, which is also being revived by new management.
On the sell side we top-sliced some of the Fund’s strongly performing healthcare stocks, notably EKF Diagnostics, which had doubled from the level we paid in March, and Renalytix. Evidence of the quite extreme individual share price volatility we’ve witnessed recently was provided by Future, which we trimmed 40% above the level we’d paid for shares earlier in May, as its price responded to reassuring results, and 115% above the price paid in March, at the nadir of the market.
Looking forwards we’ve been surprised by the strength of the market rally, the rapidity of which we’ve not witnessed as the economy has emerged from previous recessions, but no doubt in part fuelled by the prodigious amounts of monetary stimulus by central banks, driving liquidity into the equity market. The rally has now extended beyond the safe haven “bond proxies” and growth stocks, where it started, to more economically sensitive sectors. However, it’s not clear that the economy will bounce straight back from the effects on the lockdown, and other issues such as trade wars and BREXIT have not gone away, but if anything been exacerbated by recent events. We are comfortable, therefore, that we’ve tilted the emphasis in the portfolio to less economically correlated shares with relatively robust earnings even in an economically challenged environment. The exception to this is the Fund’s more elevated exposure to the construction sector, which will hopefully benefit from being at the front end of any recovery, as the government pulls its fiscal levers to jump start the economy.