October was a reasonable month for performance. The market was dominated by the creeping fear of a powerful second wave of Covid-19 and this caused high quality, defensive business to outperform their more cyclical, lower-quality counterparts

Our best performing positions included Prosus, Embracer and Cellnex, whilst not owning SAP was also a significant positive. Prosus, the Dutch technology holding company has benefited from the strong performance of their largest exposure; Tencent. The shares have also reacted positively to the announcement of a buyback. Embracer, the Swedish gaming company, continues to show extremely strong operational trends helped by the ‘stay-at-home’ trend of increasing gaming activity. Cellnex, the Spanish towers company, is speculated to be close to announcing a transaction of significant size. SAP, which we do not own, announced a significant profit warning during the month and so we benefitted from not owning this large index constituent.

Our worst performing positions included Nexi, Telecom Italia and Atos. Nexi, the Italian payments company, had risen strongly in anticipation of a merger with its Italian peer SIA. But as more clarity about this deal emerged, the shares gave back some of their gains as investors locked in some profit. Telecom Italia has suffered from a tough domestic industry, high leverage and lack of clarity surrounding the potential fibre merger in Italy. Atos announced reasonable results, but its low growth business is currently out of favour with investors.

Amongst other trades during the month, we initiated a new position in Faurecia whilst selling Bayer and Clariant. Faurecia, the French auto-components company, has suffered hugely from the supply issues and the collapse in demand that resulted from Covid 19. However, we see a strong path to recovery and see a business that is trading very inexpensively.

Bayer, the German pharma/crop chemicals conglomerate, has been a disappointing position for us and we have become concerned that the US Glyphosate litigation may drag on for several years and that the operational performance of the rest of the business is deteriorating. Clariant, the Swiss chemicals company, was a position that we had initiated partly in the hope of portfolio change and/or M&A taking place. However, we have become less convinced in this part of our thesis and after several recent calls with the company have decided to deploy our capital elsewhere.

We are confident in our positioning and will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.


Leverage: The use of borrowing to increase exposure to an asset/market. This can be done by borrowing cash and using it to buy an asset, or by using financial instruments such as derivatives to simulate the effect of borrowing for further investment