An interesting feature of the last month has been the increased divergence between ‘bottom up’ inflation anecdotes and the perceived need for any ‘top down’ policy response. HGV driver shortages have hit the headlines and, as has been widely reported, a range of our holdings have highlighted signs of staff shortages and supply side interruptions, which are beginning to lead to increased wages and prices. From an earnings perspective, the companies that we invest in have generally been resilient to these issues, but we continue to monitor the situation closely. At the same time the macro news has started to disappoint with the recent release of the July domestic GDP data being a good example as numbers came in below consensus expectations, especially in the services sector. Undoubtably the ‘pingdemic’ will have been a short-term headwind for domestic growth expectations but it is noticeable that activity has temporarily slowed across most geographic regions. At the moment then it seems that monetary authorities appear content to ignore the increased cost of living inflationary pressures reported in the press and retain the status quo in the face of weaker than expected macroeconomic data.
Our holding in Stock Spirits was the subject of an agreed cash offer from private equity and there was an increased offer for Morrisons, which has now gone to an auction process between the competing parties. The removal of the Brexit no deal ‘event’ risk, potential for economic and earnings recovery, some relatively low valuations and a private equity sector supposably awash with cash look set to support further corporate activity in the UK equity market. In the last month, four of our top performers all released impressive interim results, Vitec, Morgan Sindall, Chesnara and Keller. Babcock responded well to the sale of its Frazer Nash consultancy business for £293 million, which goes a long way towards fulfilling management’s cash raising targets for the year. There was no discernible theme to the underperformers which included Bakkavor, Bloomsbury and Sabre Insurance. From a trading perspective, our focus continues to be recycling funds from lower dividend payers into those with better yields. We finished selling our holdings in DX and Zegona and reduced our exposure to Elementis and Flowtech Fluidpower amongst others. On the buy tack we added to Contourglobal, Moneysupermarket, Dunelm and Kitwave, the recent IPO.