After a strong performance from equity markets year-to-date, the major European indices had a soft month. The Trust fared better than its benchmark during this period.
August was a quiet month for markets but was actually a relatively busy period for trading activity and we initiated two new positions; Schindler and CNHI. Knorr Bremse and Renault were sold to make way.
Schindler, the Swiss Elevator company, is a high quality, high return on invested capital business with the scope to benefit from both medium term margin improvement and short term industry consolidation. On the former, we feel that the company has been slow to integrate modern, efficient, modularised production when compared to its peers; this is something that they are now trying to address and this should result in margin improvement over the coming years. With regards to the latter, the industry is currently undergoing what appears to be a ‘final’ wave of consolidation. We see Schindler as well placed to benefit in this environment; consolidation should bring even more stability to this already consolidated market.
Finally, we bought a small position in CNHI, the Italian listed agriculture and commercial vehicle manufacturer. We see CNHI as a classic ‘Returns Inflections’ opportunity. Margins are low versus peers, the new management team seem very focused on changing this and have made some strong early progress and the valuation of the equity is extremely cheap. If CNHI are able to improve operating efficiency over the medium term, we envisage a material rerating. After we initiated this position, the company announced medium term margin targets and a split of the business into ‘On-Highway’ and ‘Off-Highway’; we view these developments very positively.
Notable strong performers during the month were Novo Nordisk, Bayer and SIG Combibloc whilst the major detractors were Assa Abloy, Amundi and Vestas.
We are comfortable in our current positioning, but continue to allocate an appropriate portion of our time to the identification and thorough research of new ideas.