Continued problems with the US regional banking system heightened investor macro concerns and led to some commentators discussing the likelihood or not of an impending US recession. Whilst a technical recession has so far been averted at home, economic growth remains pedestrian at best and inflation continues to be more persistent than the monetary authorities would like. Although this means another anticipated round of interest rate increases, these appear largely priced in. Whilst the top-down prognosis for the domestic economy remains gloomy, corporate reporting has been largely in line with expectations and we believe is supportive of valuations. Interestingly there appears to be a growing disconnect between top-down and bottom-up commentary: a number of indicators are starting to trend upwards as business confidence surveys appear to be improving and the consumer does still seem to be spending. We have also recently seen an increase in corporate activity across the market as third parties, either Private Equity or Trade Buyers, have recognised value in the UK market. In our own fund an approach for Wood Group was followed at the end of the month by a cash offer for Numis from Deutsche Bank.
We continue to be affected as investors take a downbeat view of domestic prospects and shift monies away from our asset class. Ultimately continued corporate activity and a shift to a more positive macro trend should help to highlight what we feel are attractive levels of valuation within our investible universe. Tangible evidence of this to us as managers is the sheer number, and broad base, of stocks yielding more than our four percent hurdle rate as dividends and cash flows continue to be resilient. The largest detractor from performance last month was iEnergizer who announced an intention to de-list from AIM and other underperformers included FDM, Videndum and Wilmington. A number of our housing-related stocks added value on the upside including Bellway, Crest Nicholson and Mortgage Advice Bureau. Direct Line and Sabre were also positive contributors as, despite worries over claims inflation, motor insurance rates continue to rise strongly.