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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – October 2022

MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – October 2022

Equity markets improved in October, not driven by any easing of macroeconomics conditions, but more due to recognition that much of the negative outlook was priced in. Earnings and forecast updates were mixed throughout the month. Confidence in the UK market was buoyed by a change of Prime Minister and a move back to more orthodox economics, driving a strengthening of the pound and a normalisation of the gilt market. From a monetary perspective, the start of November saw a continuation of recent tightening, with both the Fed and the Bank of England raising rates by 75bps. However, the messaging differed, with Governor Bailey commenting that he expected rates to peak at a lower level than market expectations, whilst Chair Powell highlighted the opposite. In part this is due to the differing nature of the two economies, with US inflation being driven by excess demand and an overheating economy, whilst UK inflation is more driven by the reduced supply of Russian gas and the associated cost of living pressures.

At the fund level, there was a mix of drivers of performance. SigmaRoc and Atalaya, both cyclicals, improved from oversold levels, as did Accesso, the provider of technology solutions to theme parks, tourist attractions and venues. CentralNic saw continued strength in its Online Marketing segment, announcing that it expected to materially exceed market expectations, whilst Alpha FX upgraded as a result of higher interest income. From a negative perspective, GB Group fell on confirmation that there would not be an offer for the company, combined with a lacklustre trading update. Alphawave was weak despite a solid Q3 trading update, driven by the placing of 4.6% of the share capital below market levels, and IOG was down on a very poor operational update. Elsewhere, Stelrad was weak on economic sentiment, and Kistos pulled back as a result of easing European gas prices.

From a trading perspective, we raised liquidity from RPS (subject to an agreed bid), Wilmington and Boku (both after a period of strong share price performance). We exited Qinetiq, which has been very resilient this year amongst demand for defence exposure, and reduced Volex amidst concerns about demand from their consumer electronics customers. On the buy side, we continued to buy Ascential, a new position in September, GB Group, Alpha FX and Genuit on weakness and supported a placing in Kape to deleverage their balance sheet.