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MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – October 2020

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – October 2020

After a policy of tiered lockdowns in England the move to a full national lockdown was ‘leaked’ at the end of the month. Interestingly the share prices of some of our more UK centric consumer stocks that are directly affected such as Marstons and Restaurant Group were unmoved suggesting that a good deal of bad news is already being priced in. They are also obviously helped by the extension of the furlough payments. DFS, the sofa retailer, released a statement saying that due to a strong order book and delivery schedules this year’s numbers would not be materially impacted by the latest lockdown. Perhaps the main difference this time is that companies now have the experience of trading through lockdown and have adapted. Sticking with DFS, they now have evidence that their orders either migrate to online or are deferred until stores re open, the proverbial V shaped recovery. The experience of pubs and restaurants is that when they are able to open the demand is there. Elsewhere company trading updates and results continue to be generally better than overly cautious analyst estimates.

The recent announcement of a viable vaccine in the fight against Covid is hopefully the catalyst that investors have been waiting for to start buying ‘value’ stocks again. In the immediate aftermath of the announcement ‘value’ significantly outperformed ‘growth’ both in large and small cap and we wait to see if this leads to a fundamental shift in fund flows over the coming months. Increased confidence resulting from a vaccine should lead to more companies returning to the dividend list over the next six months and should add significantly to our investible universe. At the same time, it should also encourage private equity investors to finally start spending their substantial war chests on acquiring some relatively lowly rated public companies. At the stock level last month Bloomsbury was the top contributor to performance in the month as it released its best interim results since 2008 buoyed by the decision to continue to publish and release new titles through the pandemic where competitors chose not to. Pleasingly they returned to paying a cash dividend. Other good performers included Tyman, Synthomer and Halfords. Laggards included Devro, Keller and Strix.