The Fund returned 2.06% in September, modestly underperforming its IA UK All Companies benchmark. A number of profits warnings put the brakes on the Fund’s performance. Altitude, a stock we had high hopes for this year, warned that it was behind schedule in its plan to monetise its supply chain position in the US promotional goods market, causing its shares to fall back very sharply. Somero Enterprise, the US building equipment business, was impacted by poor weather in its home market, which was exacerbated by a slowdown in certain overseas markets. Finally, Quixant warned again, as its gaming machine customers continued to lose market share, curtailing their demand for its components. On a more positive note Statpro Group, a longstanding holding in the Fund, announced an agreed takeover offer at a significant premium.
The UK market continues to be driven by a slavish adherence to the almost daily gyrations in BREXIT sentiment and its attendant impact on Sterling. Since the BREXIT vote in June 2016, the strategy of reducing the Fund’s exposure to UK cyclical earners and focussing on structural growth, less economically correlated businesses and overseas earners has served the Fund well. With BREXIT hopefully now approaching some sort of end-game, we have started to redress the Fund’s underweight position in UK domestic earners, aware that whilst earnings may be still under pressure as the prolonged effect of BREXIT impacts short-term consumer sentiment, these stocks look heavily oversold to us and we think they could re-rate significantly on any BREXIT resolution. Whatever the BREXIT outcome, the wider global picture also remains clouded, with trade wars providing a considerable headwind, particularly for industrials, where we have seen a pick-up in profit warnings and downgrades as we near the year-end. Having reduced the Fund’s weighting to this segment earlier in the year, we will be looking to take advantage of any sell-offs in our preferred stocks.