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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – August 2023

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – August 2023

After the recent US employment data reaffirmed that the period of rate rises may be drawing to a close across the Atlantic, UK analysts appear to still be pricing in another couple of rate rises in the domestic market. Against a background of softening macro data this is undermining equity valuations as investors become increasingly concerned about over tightening and a ‘hard landing’ for the UK economy. Whilst investor sentiment is quick to react to poor macro news it is interesting to note the lack of commentary surrounding the upward revision of UK economic growth after the pandemic by the ONS. Perhaps the UK was not such an outlier after all. One high profile area of concern is the housing market, where the evidence from the companies currently reporting numbers is of a marked slowdown in sales. Given the political relevance of housing affordability it will be interesting to see if any help is announced in the Autumn statement on November 22nd. We are not expecting anything and arguably the bad news with regard to housing sales has been reflected in share prices as a good number of housebuilding shares already trade at discounts to asset value. 

To highlight the current reticence to invest in UK small and mid caps our best contributor to performance last month, Keller, was one of our worst performers this month. As our UK small and mid-cap universe starts to regain favour with investors we will start to see a more sustained positive share price performance rather than just the current short term ‘bounce’ on reassuring news. We raised monies from the reduction of our weighting in Kitwave on yield grounds, we reduced Sabre after a strong share price move and sold our holding in DWF after the bid. We topped up our holdings in Mattioli Woods, Somero, FDM and Vanquis. It has been pleasing to note the resilience of underlying dividend payments as companies have started to release their results.