The relative performance of our UK facing investments continues to be largely driven by an almost slavish adherence to Brexit sentiment and short term movements in Sterling. Hopefully, however, the current state of uncertainty will soon be addressed, at which point investors and the companies that we invest in can start to take a longer term view of corporate prospects. However, never has the phrase ‘a day is a long time in politics’ seemed more apposite. Consensus at the moment seems to be that we will leave with some sort of deal which would be good for Sterling and the UK centric stocks that we invest in and should start a period of capital investment ‘catch up’. Whatever the Brexit outcome, Global trade remains a formidable short-term headwind and we expect a raft of earnings downgrades, particularly from industrials, as we get closer to the year end. As ever we expect this to present a number of attractive opportunities to add good quality stocks to our income portfolio.
At the stock level, we top sliced our holding in Ultra Electronics after a period of strong performance which then subsequently sold off. Flowtech, Senior and Hostelworld all detracted from performance in the month. Positive contributions were made by GVC, Rank, Sabre, Ashmore and Saga amongst others. We started to build a position in a new holding for the fund: Biffa, the waste management company. The uptick in corporate activity continued with an agreed cash offer for Low & Bonar. We expect the widely reported increase in overseas and private equity corporate activity to continue as UK companies remain attractive on a cash flow basis. We reiterate our hope that take-over valuations start to increase and ultimately more fully reflect long term prospects rather than short term disinterest.