In a particularly difficult period for our investible universe the key macro feature of the month was the increasingly hawkish rhetoric from the Fed with respect to US rate rises, ie higher interest rates for longer. This had the inevitable negative effect on stock markets and further strengthened the US$ with some commentators now forecasting parity with Sterling, which was already under downward pressure from a worsening domestic macro outlook. Small and mid-cap equities sold off as the headlines were dominated by the escalating cost of living crisis and particularly the rising energy bills for both the consumer and business. Whilst other European countries appear to have plans in place to mitigate the worst of the energy price increases, the UK response was delayed due to the timing of the Tory leadership race. New Prime Minister Liz Truss has now been appointed however and the plan announced to freeze energy bills has the potential to improve the outlook for the UK consumer.
We have said for some time that the underperformance of UK small and mid-caps leaves companies vulnerable to takeover and in the last month we have had two offers in our portfolio. RPS have agreed a deal with WSP and Micro Focus have agreed a deal with OpenText. Interestingly as private equity sits on the side-lines for a period until the interest rate environment stabilises, the baton has been taken up by corporates themselves and we expect this to be the case for the foreseeable future. At the stock level analysts continue to downgrade expectations and price targets for a wide range of companies and those stocks that are consumer facing have been amongst the hardest hit in the short term. Despite this historic numbers continue to hold up reasonably well across our investments but share prices continue to fall as the outlook remains so uncertain. There was little correlation between either our best performers in the month including TP ICAP and Videndum and our worst including TT Electronics and Secure Trust. Robust dividend payments and continued share buybacks continue to be a small positive influence within our portfolio.