The CH UK Equity Growth fund had a much more pleasing quarter, where the ongoing terrible conflict in Israel and Gaza in October gave way later in the quarter to increasing optimism for receding interest rate and inflation risk.
Inflation in the UK has been steadily easing and it can’t be too long before the Bank will start (albeit gently) cutting rates.
We remain optimistic that increased visibility on monetary policy will underpin improved market conditions, and one only has to look at how well the UK markets have performed over the past quarter, as a hint of the potential upside in equities.
There were positive market movements across all sectors of the FTSE, but particularly in Industrials and Consumer Discretionary where the fund remains overweight. After a lacklustre year Halma, Spirax-Sarco Engineering and Diploma all rallied late in the quarter, on the back of no market announcements, just the long-awaited shift in sentiment. Judges Scientific, the maker of niche scientific instruments, who we added to in October following a meeting with management, also performed strongly.
In Consumer Discretionary, InterContinental Hotels, the group behind the Six Senses and Holiday Inn chains, was the bright star (up just shy of 50% in 2023), where their mix of multi-price pointed brands and franchised operating model increased revenues and profits as the world recovered from the Covid-19 pandemic. Trainline, the rail ticketing app, received a fillip in December when the government quietly dropped it’s plans for a Great British Rail app and Howden Joinery, the kitchen makers, rallied into the year-end on the back of its continued excellent cash generation and balance sheet strength.
Not all companies fared well in the final quarter, and in particular Diageo performed poorly. The beverages conglomerate issued a rare and surprising profit warning in November, citing very tough trading conditions and subsequent destocking in Latin America and the Caribbean. Coupled with the new CEO making a hash of the earnings call the stock was hammered. It is noted that LatAm & The Caribbean account for 11% of Diageo’s annual net sales. On the other hand, Hein Schumacher, the new CEO of Unilever delivered accomplished maiden results with their intention to focus on their major brands and the bottom line, rather than their brand’s respective ESG qualities. It is rather hard to find a social purpose for mayonnaise.
RELX, the global information and analytics company, continued its strong performance and we took some profits. We also took further profits in Dechra Pharmaceuticals, the veterinary drugmaker, whilst we await their acquisition by EQT to go through and sold our holding in video games software developer Keyword Studios.
Finally, we are permitted to hold a small allocation to non-UK equities and we allocate to sectors where we see a lack of UK options, in particularly healthcare and technology. The fund benefitted well from holding two of the ‘Magnificent Seven’; Microsoft and Alphabet who contributed well to the fund’s overall performance.
The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.
Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.