The recent interest rate increase was widely anticipated and benefited our portfolio in the latter part of the month as sterling strengthened whilst the rise in the oil price was a mild headwind. We have often referred to the short term effects of ‘investor sentiment’ on both share prices and the relative performance of small and mid caps compared to their larger counterparts. In a nutshell, when sentiment is positive investors tend to be happier to own stocks within our universe. One significant macro input into investors’ appetite for our companies is the domestic and global political backdrop and arguably, at the moment, the ability to ‘price’ political risk here at home, in the US, and now in Germany is as difficult as it has ever been. It appears that investors have little option but to look through the ‘top down’ political ‘noise’ and concentrate more on the actual companies themselves. With strong balance sheets and cash flows, gently improving trading and growing dividends, this should be good news for the type of company we invest in.
In the last month we have added one new holding to the fund, De La Rue, the world’s largest designer and commercial provider of banknotes and passports. We also supported a placing in Hilton Food as they raised money to buy Seachill, broadening their offering into fish and seafood, and we added to a number of existing holdings including DFS, Go-Ahead, Kier and Severfield, whilst reducing Games Workshop and Curtis Banks after a period of good performance. It is noticeable that a broad range of ‘in line’ statements by investee companies have been met recently with an almost overwhelming indifference and share prices have started to drift downwards. Part of the reason for this is that liquidity is being absorbed by the sheer number of IPOs and fund raisings that advisors are rushing to complete before the year end. This ultimately suits us as it will present us with some attractive new opportunities and will increase the number of stocks yielding four percent, our investible universe, amongst the wider market of domestic small and mid caps.