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MI Chelverton European Select Fund – Monthly Manager Commentary – March 2021

European markets rose during March. Results season continued to be broadly supportive for company valuations. Stylistically, value had another good month, outperforming growth. However, the shape of the outperformance was more apparent in areas like Industrials, with Financials and Energy giving up a little of their recent outperformance.

The fund enjoyed a positive month in terms of performance, despite the ongoing headwind of currency in the form of Euro weakness – with the Euro weakening a further 2% versus GBP, our unit reporting currency. This brings this headwind to over 5% year to date.

Almost all of our companies have now reported full year results to end December 2020. In terms of performance, Lastminute (online travel business) enjoyed a strong share price performance as it reported a solid financial position plus early signs that bookings were building up. Cliq Digital (content streaming) reported rapid sales growth, with excellent cash generation, no debt and a proposed dividend – a rare combination of factors in this area of the market. Also enjoying a strong share price reaction to positive results were Arcadis (top tier global technical and engineering consultant) and D’Ieterin (holding company with a focus on auto windshield repairs). Siili Solutions and Sword Group (both IT services) were also up strongly following positive results.

Detractors from performance included BPost (Belgian postal service), where results were solid but below expectations. The CEO has since been removed and we think there is much potential for the incoming management to achieve. Elsewhere, there were modest underperformances from some of our more defensive holdings, including pharmaceuticals. There was also some profit taking in recent strong performers such as Recticel (technical foams) and Proact (IT storage solutions).

Two new holdings were purchased during the month. Limes Schlosskliniken operates health clinics offering treatment for stress-related illnesses. It provides a rare opportunity to gain exposure to the treatment of mental health issues and will deliver self-funded growth as it rolls out new clinics. AMS is a market leader in optical sensor microchips. It has lagged the sector and currently trades on a very attractive free cashflow yield in excess of 10%. Holdings in Heidelberg Cement, Barco (cinema equipment) and Nokian Tyres were sold during the month following good recent share price performance.

Looking forward, we remain confident that we are able to find interesting, cheap companies in which to invest, especially in the smaller companies area of the market. Whilst sceptical that recent gains in some of the more structurally challenged value-type companies can be sustained, we welcome the degree of valuation discipline which now appears to be being demonstrated by markets generally.