September was a volatile month, where a relatively subdued -1.0% return in the FTSE All-Share Index (on a total return basis) masked some large underlying moves, driven by rising energy prices and rising bond yields. For example, the rise in the oil price, as demand recovers and inventories are gradually drawn down following the pandemic, led to both Royal Dutch Shell and BP rising approximately 15% on a total return basis during the month (a very large move considering the scale of these companies)1. An even larger move upwards in the UK gas price meant that Serica Energy, a North Sea oil & gas producer (exposed primarily to gas), was the largest individual contributor to performance in the portfolio.

One new (small) position was established in September in wealth management firm, Brooks Macdonald. In recent trading updates, it has returned to modest net inflows, with particularly good growth in their ‘managed portfolio services’ business (where they provide portfolio management services to independent financial advisors). In our view, this portion of the business has further scope to grow.  We also added to a number of existing holdings, including Finsbury Foods, Chesnara, Headlam and Halfords.

Following a good earnings recovery in the first half of 2021 as economies recovered from the pandemic, the second half of the year is likely to be more difficult, driven by cost pressures and supply outages. This is creating a challenging operating environment for businesses, as while order books in many cases continue to be strong, companies are struggling to fulfil these order books.  Therefore, the conversion to sales and earnings is (in some cases) likely to be slower than originally anticipated. While this is likely to cause some unpredictability to earnings in the second half of the year, we continue to see this as a delay on the route to earnings recovery rather than a structural impairment to future company earnings. We have therefore continued with the Trust’s existing positioning, which includes a significant weighting in the industrials sector.



1 Bloomberg, as at 30th September 2021