August was a good month for the fund, with the lag behind the index experienced in July more than recovered. Significant profit warnings from Continental (car components and tyres) and Bayer (healthcare and agricultural pesticides etc) hurt the index and sentiment but we hold neither of these and therefore came away relatively unscathed.
It was – as is usual for August in Europe – a quiet month for news and we made few changes. We have continued to add a small amount to our bank holdings, building the positions in UBS and Credit Agricole a little further. Elsewhere we have taken some more profit (while still maintaining a position) in L’Oreal, Novo, Vestas and Inditex. In early September we have a small cash position which reflects our more cautious view towards equities in the short term.
This caution is predicated on the large divergence between the levels of the USA equity market compared to Europe. It could be that Europe is very under-valued, but with stress rising in Italy and signs that growth is slowing, there are obvious headwinds. The alternative is that perhaps the USA market is somewhat overvalued, but a European Fund Manager might not be a good judge of that.
Pleasingly, the strong relative performance during the month was partly driven by a recovery in two high conviction names, Amundi and Deutsche Post. Both shares have performed poorly year-to-date, but we have held our nerve and it is reassuring to see the share prices stage somewhat of a recovery following strong recent operational updates from both companies.