It was a moderately good month for the Trust on a relative basis although on an absolute basis the NAV fell. The Trust’s net asset value fell 2.6% on a total return basis while the FTSE All-Share benchmark fell 3.3%. The Trust benefitted from some of its small company holdings including Avon Rubber, XP Power and Churchill China performing well, while being ‘underweight’ large index weights that performed poorly including Royal Dutch Shell (which had disappointing results driven by their refining business) and HSBC (heavily exposed to Hong Kong where the economy is contracting).

The largest detractor from performance was law firm Ince, which did a placing at a large discount to the undisturbed share price in order to fund necessary working capital in the business (it was effectively an emergency rights issue). This was disappointing as this firm had been highly acquisitive during 2019 and the working capital problems came about because of the speed of acquisitions and poor forecasting on behalf of the (now departed) CFO. We took up our corner in the rights issue as it came at a very low valuation, the management team participated in the raise, and the new CFO is an improvement. It is a small position in the overall portfolio, less than 0.5% net assets at month end.

The ‘soft’ data coming from the UK economy during the month continued to be largely positive (for example PMI data and mortgage approvals), as evidenced by the Bank of England’s decision to hold off on cutting interest rates. Consensus real GDP growth for 2020 remains low at 1.1% (a similar growth rate to 2019) but the spread of forecasts is wide, ranging from the Bank of England which expects 0.8% growth, to, for example, the Panmure economist who expects 1.5% GDP growth and the Berenberg economist who expects 1.7%. While looking at top down forecasts is not how we manage the portfolio, recent data would suggest the economy is performing better than expected and this might benefit the more ‘domestic’ holdings in the portfolio including RBS, Ten Entertainment, Shoe Zone, the housebuilders (Taylor Wimpey and Bellway) etc.

Trading activity has been modest but has been focused on gently reducing companies held on high valuations versus history (such as Avon Rubber) and adding to lower rated, but in our view still good quality businesses such as Morgan Advanced Materials. The gearing remains relatively unchanged since recent history at just over 12%.


Net asset value (NAV): The total value of a fund's assets less its liabilities.

The Purchasing Managers' Index (PMI): an index of the prevailing direction of economic trends in the manufacturing and service sectors.

Gearing: A measure of a company’s leverage that shows how far its operations are funded by lenders versus shareholders. It is a measure of the debt level of a company.