In December, the Trust had a disappointing month and we continued to struggle for performance.

This was very much a market led by value and cyclicality and our best performing positions included Unicredit, CHNi, Stellantis and Munich Re. From these four positions, the only thing worthy of stock-specific comment was the Unicredit Capital Markets Day. During this event, the new CEO, Andrea Orcel, laid out his medium-term intention to return the bank to a business capable of delivering a double digit return on tangible equity. If he is successful, we believe that this could potentially result in a substantial rerating of the equity from their current 0.4 to 0.5 x tangible book value trading range.

Our worst performing positions included Delivery Hero, Cellnex, Zur Rose and HelloFresh. These are all very much ‘growth companies’ and this was not the environment for these kinds of stocks to perform well. We retain our faith in Delivery Hero, which we see as capable of reaching profitability within 24 months, and Cellnex, which offers a defensive and growing stream of future cash flows. We have sold our position in HelloFresh which we see as more challenged over the next few years whilst maintaining a small position in Zur Rose.

We have repositioned the portfolio somewhat in recent months. In summary, we have been working to increase our cyclical exposure heading into 2022 (via companies such as SKF, Safran, Arkema and Total), we have reduced position sizing in our earlier-stage tech companies (Delivery Hero, Sinch and others) and we have balanced our sector exposure. The intention is to better position the portfolio to benefit from the post-Covid recovery whilst aiming for a more neutral cyclical/defensive tilt (we have been meaningfully overweight defensives) and a slightly more diversified portfolio (more stock specific risk, less factor/sector/thematic risk). As part of this rebalancing, and alongside other trades, we bought new positions in Total, Arkema and SAP in December whilst selling Hellofresh and RWE.

We 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.