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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – September 2020

MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – September 2020

Volatility returned to the market in September as investors started to fret about the rise in reported COVID-19 cases and the likely impact of tightening restrictions on the economy. With the BREXIT deadline drawing nearer, the prospect of no deal also somewhat dampened the enthusiasm for UK domestic equities. The Fund managed to generate a positive 0.76% return, outperforming its IA UK All Companies benchmark, thanks in part to a very strong performance from Future, its largest holding, whose shares rose sharply on the back of a positive trading update pointing to a profit performance materially above market expectations, as its digital publications continued to exhibit high growth. Elsewhere Somero Enterprises and Alpha FX both responded well to reassuring trading updates and Amryt Pharma performed strongly on news of positive results from a Phase 3 drug trial. There was no particular theme to the Fund’s underperformers with a broad selection of stocks giving up ground in the absence of any meaningful newsflow.

At the micro level, most of our holdings have been reporting a healthy bounce back in business post lockdown, generally trading ahead of all the worst-case scenarios they envisaged in late March. The extent to which this is purely a catch up from April and May is not entirely clear. One discernible trend has been a shift in consumer spending habits, with more time spent at home and higher savings ratios, due to an inability to holiday abroad and eat out, resulting in a material pick up in spending on home improvements and larger ticket consumer goods. Whilst this trend is encouraging for our building materials exposure and the likes of DFS Furniture, the acid test will be to see how it holds up, with the prospect of rising unemployment denting consumer confidence.

On the dealing front we trimmed holdings in several of our strongest performers, namely IMIMobile, Next Fifteen, Future, XP Power and Strix on valuation grounds. We exited Cloudcall, after a sustained period of lacklustre performance, and B&M European Value Retail, in line with our policy of not holding FTSE100 stocks after its graduation to the large cap index. We topped up VP Group, RPS Group and Eco Animal Health on valuation grounds and supported a placing by CentralNic to finance an acquisition. We also took advantage of a fund raising by Essentra to fund a complementary acquisition to start a holding in this component and packaging solutions business. Finally, we built up a holding in Alpha Financial Markets Consultancy, a growing specialist consultancy focused on the financial sector.