In a very tough market environment, February was another decent month for relative performance; generally, we have managed to hold up reasonably well in the face of growing concern surrounding the impact of the COVID-19 virus.

There was a very high level of stock dispersion in February and our performance was driven by a few key positions, namely Telecom Italia, Bawag and Cellnex; three very different businesses with very different investment cases. Telecom Italia benefitted from its inherently defensive operational characteristics, even in the face of poor sentiment towards Italy. We also saw growing media coverage of the discussions ongoing between KKR and Telecom Italia regarding the potential for KKR to take a stake in Telecom Italia’s fixed line wholesale business. Bawag has performed well operationally in recent years and after the ECB approval of a buyback in late 2019, the shares have started to rerate. Cellnex, the Spanish telecoms towers company, continues to sign deals across Europe and during February, the company announced an agreement to rollout fibre infrastructure for Bouygues in France.

Our worst performing positions tended to be those whose earnings are most likely to be damaged (in the short term) by the impact of the virus. Examples included ADP with its exposure to global travel volumes and SGS, with its exposure to global trade testing volumes.

There were three major moves that we made during the month, taking advantage of the heightened levels of market volatility. First, at the start of the month, we initiated a position in the French payments company Worldline. We had previously bought a position in Ingenico and then, after Worldline launched a takeover of Ingenico, we bought a position in Worldline, believing that the attractive economics of the deal were not being accurately priced by the market. We also initiated a new position in Alstom. We see this French train manufacturer as being well placed to benefit from the growing government interest in rolling out high speed railway infrastructure across Europe. Finally, we used the extreme market moves towards the end of the month to buy back a position in ASML. This is a company that we know well having previously owned it in 2019.

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.