In September, the Trust slightly underperformed the index. The underperformance was driven by a strong value-led rally in the market in which we did not fully participate.

Our strongest positive contributors were Bawag, Unicredit and CNHI. Bawag performed well alongside the upwards movement in interest rates and also benefited from the increase in medium-term return-on-tangible-equity (RoTE) ambition that was given at the Capital Markets Day (17% RoTE versus prior 15% target). Bawag remains our largest and highest conviction financials position. Unicredit contributed strongly, again positively impacted by interest rates, but also from media commentary around the proposed acquisition of BMPS which should be earnings enhancing and capital neutral. CNHI benefitted from its cheap valuation as well as the upcoming catalyst of the On-Highway business spin. Our weakest performing positions were some of our most obvious ‘growthy’ names including Worldline, Delivery Hero and Cellnex: there was nothing stock specific of note, but all three suffered from the movement in the market away from growth towards value.

We initiated one position towards the end of the month: Safran and sold our position in IAG. Safran is a civil aerospace company that specialises in engine manufacture and servicing. Safran has a highly attractive economic model; they manufacture engines and then provide aftermarket servicing and spare parts over the >20 years life of the engine. The aftermarket revenue streams are very predictable and very profitable. Safran are also at the forefront of making increasingly efficient engines which are much more environmentally friendly. They are leading the charge in investing behind new technologies that could transform the airline industry (and in fact already are); engines that can use Sustainable Aviation Fuel (SAF) and eventually engines that can be fuelled by hydrogen.  I feel that the recovery for the civil aviation sector is starting to take hold, but has a lot further to run; Safran should benefit from this. There is clearly an Environment Social and Governance (ESG) debate to be had here, but my view is that a future without air travel seems very unlikely, so if we are going to fly, we need to focus on making it less environmentally damaging and eventually carbon neutral; the engine manufacturers are the ones spending billions on research and development to make this happen.

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.