Bath/Head Office & Unquoted Equity Team:
London Office & Quoted Equity Team:
Edinburgh Office & European Quoted Equity Team:
MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – October 2021

MI Chelverton UK Equity Income Fund – Monthly Manager Commentary – October 2021

The majority of trading statements from our investee companies remain positive and ‘in-line’ but the loss of momentum in earnings upgrades has led to pressure on share prices in our investment universe. We believe that this will prove to be a temporary pause for breath and is to be expected after such a strong recovery in prices since the vaccine rollout started in earnest. The fact that share prices are now falling after disappointing news suggests that investors have finally stopped looking through to a general recovery that will benefit all and are starting to become more cognisant of underlying valuation. As experienced active investors we expect this return to a more fundamental valuation basis to start to throw up some interesting investment opportunities for us over the coming months. One area we are looking at currently is on the demand side of the equation and whether strong order books are representative of sustained demand or are a reflection of orders being pulled forward as economies recover after the pandemic. Another area of interest is where there have been supply side disruptions but company profitability has held up well as margins have risen to compensate. The focus here will be on how much, if any, of the margin increase can be retained as the supply side normalises, which it inevitably will.

At the portfolio level, we raised funds from the sale of our holding in Morrisons after the results of the bidding auction were announced and we sold our position in Centaur Media into market demand on dividend yield grounds. As prices in the market drifted we were able to recycle these funds into a number of holdings to enhance the overall income outlook for the fund. These included housebuilders Bellway and Vistry which are still trading strongly and managing the supply chain issues in the industry well. We also topped up Brewin Dolphin, Direct Line, Ashmore, and Vesuvius. We added to Smart Metering Systems which had fallen after their recent placing and supported the fund raise by Synthomer as they bought Eastman’s adhesive resin business, an acquisition that was well received by the market. We also increased our weighting in Provident Financial after they released a positive trading statement and dividend update. In terms of monthly performance, Sabre fell as investors worried about motor insurance claims inflation and Strix, STV and Tyman detracted from performance. On the plus side, Bloomsbury responded well to impressive interim results, Mortgage Advice Bureau recovered from a recent dip and Wilmington and Drax performed relatively well.