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

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

Towards the end of the month, the Fund suffered as new restrictions were imposed by the government, including the 10pm curfew. The adverse effects on the hospitality trade needs no explanation but share prices fell across the board as investor sentiment turned negative in the face of a constantly changing set of rules. Whilst this is not a political forum, it is interesting to note what appears to be an increased level of debate in government about the social and economic implications of such measures. Whilst domestic consumer facing business remains volatile there has been a consistent trend of improvement in B2B trading in recent months against a background where inventory levels appear to be relatively low, leading some commentators to talk about the prospect of a sharp recovery in industrials. If this turns out to be the case, it should start to focus minds on the underlying valuation of ‘value’ stocks and sectors. At the time of writing the prospects of a ‘no deal’ Brexit and all the uncertainties implied with such an outcome appear to have reduced as well, as both sides make more conciliatory statements. We shall see. In the meantime, corporate UK still seems to be trading ahead of what appear to be overly bearish analyst estimates.


An indication that the corporate world is returning to some sort of normality is that after a lengthy period of inactivity a number of our holdings announced acquisitions or potential acquisitions last month. Redde Northgate was first out of the blocks with the purchase of Nationwide Accident which was well received and the fact that it was paid for out of cash resources highlighted balance sheet strength. TT Electronics used a combination of a small equity raise and existing cash resources to buy a business in the US that they had been keen on for some time, and the crisis has provided the opportunity. On the other hand, Essentra ‘over raised’ when they announced the purchase of a US packaging business via a share issue and this has caused a short term sell off in the share price to the point that the stock was one of our worst performers in the month. Another poor performer in the month was TP ICAP which towards the end of the month announced the intention to buy Liquidnet, but it is to be partially funded by issuing new equity and the news has caused a sharp sell off in the share price. Financial stocks in general performed poorly last month with Ashmore and Provident Financial also detracting value. Consumer cyclicals such as Rank and Marstons suffered, but Halfords bucked the trend as the continuing momentum in cycles was highlighted in a positive trading update. STV bounced back strongly from last month’s sell off, Strix benefitted from a reassuring trading update and consumer defensives, Devro and Bakkavor, performed relatively well.