Against a daily diet of confusion over Brexit, worries over domestic politics and bearish rhetoric with respect to global trade, ‘bottom up’ corporate news has remained robust. It is generally accepted that UK plc has had the benefit of a short-term inventory build ahead of the original Brexit date and companies that we speak to are currently in the process of deciding whether to run stock levels down or stay as they are. It is fair to say that the jury is currently out on this subject. One other tangible effect of Brexit, deferred corporate spending, shows no sign of being reversed, although as already noted we have seen a pick up in corporate activity. The outperformance of small and mid cap in the month was partly a result of the underperformance of some of the more defensive large cap sectors. More importantly, however, it does appear that one consequence of the large drawdown at the end of last year is that analyst forecasts for domestic small and mid caps are now generally at realistic levels which leave scope for outperformance.
Our best performer in the last month was KCOM which was the subject of an agreed cash offer, our third so far this year. We sold our holding at the uplifted capital value and recycled the proceeds to replace the lost dividend income and added to a number of existing holdings including National Express, Sabre Insurance, Bakkavor, SOCO and Tyman. We also added a new stock to the portfolio, Wincanton, a domestic logistics company on a dividend yield of just under four and a half percent. Other stocks that performed well included Hostelworld, Morgan Advanced Materials, Flowtech and TT Electronics and it is no coincidence that all these stocks released figures in the period which was a catalyst for analysis and commentary, the majority of it positive. It is a short term absence of newsflow that in a lot of cases creates the pricing inefficiencies inherent within our small and mid cap universe. On the downside we had a profit warning and dividend cut from Saga and Galliford Try continued to suffer problems in its contracting business, this time on a contract for the Queensferry Crossing. Interestingly, despite the resilience of markets, after the recent results season we currently have more potential new holdings that meet our investment and yield criteria than for some time.