The announcement that Boris Johnson was to become the next Prime Minister at the end of last month contributed to a sharp fall in Sterling and underperformance of our small and mid cap portfolio compared to large cap peers. Whilst this reflects a well-worn short-term knee jerk reaction that then tends to be gradually reversed, the belief that there is now an increased likelihood of a No Deal Brexit provides further headwinds for our asset class. Commentators are increasingly worrying over the exact mechanism of Brexit, the nature of future trade deals, and the chances of an early General Election with little consensus amongst any of them. Although the ‘macro’ feels very uncertain, the companies that we invest in have all, in some way or another, shown their ability to adapt to changing surroundings when they have had to. The extent and speed with which they are able do so obviously differs and this is something that we try to assess. As a generalisation, however, going into a period of potential change with a strong balance sheet and a business that is inherently cash generative should help greatly. Arguably, this is not currently reflected in the gulf in valuation between ‘value’ and ‘growth’.
At the stock level, two of our poorer performers, Morgan Advanced Materials and FDM, issued reassuring results and we added to our holding in the latter. SOCO, Bakkavor and De La Rue all detracted from overall performance as well. On the plus side, Ultra Electronics, Strix, BBA Aviation, Wood Group and XPS Pensions all performed well, the latter partially rebounding from last month’s sell off. Interestingly, there is no discernible correlation or ‘theme’ between any of these highlighted stocks. We sold out of one of our long-term holdings, DiscoverIE, on yield grounds and reduced our exposure to Victrex and Ashmore. We topped up Hays, Severfield and Tyman and took up our Rights in Synthomer. We added one new holding to the portfolio, Vitec, which provides products to the global image capture and creation markets. This is a stock that has been on our radar for some time and recent price drift brought it within our investible universe. Suffice to say this is happening to a growing number of companies’ shares at the moment.