Understandably, the uncertain global political environment and the continued escalation of trade war rhetoric has increased volatility in equity markets, and this has presented us with some new investment opportunities. Our investment process requires us to sell holdings yielding two percent or less prospectively and to reinvest in stocks with yields above four percent. It is this discipline that will underpin our ability to deliver an appropriate level of income to our investors over the investment cycle. We have highlighted before that we have recently struggled to find new stocks of the requisite long-term ‘quality’ to add to the portfolio whilst still retaining our ‘balanced’ approach to portfolio construction. Interestingly, in the last month we have been able to buy positions in Aggreko, Rank Group and Bellway who are all ‘out of favour’ in the short term but are all companies that we believe have sound long-term prospects. We have funded these purchases from the sale of RWS, Computacenter and Electrocomponents after periods of strong long-term outperformance.
In terms of contribution to performance over the month Polar Capital responded well to a good set of results, STV and Strix benefitted from a rerating and BCA announced that they had been the subject of a tentative bid approach, since withdrawn, alongside impressive results resulting in no reduction in the share price. On the downside the worst performers were all UK centric companies, N. Brown, McColls, Crest Nicholson and DFS, and there continues to be a relatively high number of earnings disappointments amongst companies with exposure to the UK consumer. Unsurprisingly then the valuation gap between small and mid cap domestic earners and the rest continues to widen. Connect issued a very poor trading update alongside a proposed dividend cut and we added to a number of existing holdings in the portfolio including Ashmore, De La Rue, Kcom and Severfield and continued to reduce our largest weighting, Games Workshop.