Market sentiment is poor and you have to really sift through the fog to find positive catalysts, but there are specks of light starting to shine through. Since 2016 and the Brexit vote there has been chronic underinvestment from UK companies due to the lack of clarity on the future. Moving on 7 years later and 25% of the UK’s GDP sits on companies’ corporate balance sheets (and 13% is in household cash). The dry powder is there and ready for the spending and we just need some more clarity and benign political and economic conditions. Next year we have a General Election with two, non-populist, front runners. Not something Italy, France, USA etc have had or will have. With a clear political mandate (from either side of the political spectrum) we should see longer-term thinking and subsequent investment come to the fore and we have been positioning our portfolio as such. 

Over the course of the quarter, we have seen improving results from consumer businesses, as customers spend their hard earned cash. Greggs saw strong performance in like-for-like sales in their May trading update, with the baker managing to keep a handle on and pass on the inflationary burden. The business opened 63 new shops over the period and see further opportunities to dispense sausage rolls nationally. Fever-Tree Drinks, Compass Group and Trainline all reported estimate beating results.  

We have equally been active in the Financials sector of the portfolio, where we sold both our banks in Barclays and Close Brothers Group. Barclays had been in the portfolio for over twenty years, but over the last few years the business has lost its dynamism and its investment banking division is no longer the crown jewel it once was. Close Brothers was also sold on the back of its stinker of a profit warning where it’s profits took a 90% hit after the bank had to set aside an extra £100m for a write-off of the Novitas litigation financing book. We used the proceeds of both to add to Experian, the  consumer credit and data company, who continued to deliver resilient revenue growth despite the challenging economic background. We are preferring to hold the stock exchanges, asset managers and financial services businesses in this sector as we believe them to be more quality growth and far less dependent on the political and economic cycle.   

We have seen foreign investors taking substantial stakes in our portfolio companies. As mentioned last quarter the bid for Dechra Pharmaceuticals by EQT Investors was accepted by the board and will be put to the shareholders over the summer. Warren Buffett’s Berkshire Hathaway have started building a position in Diageo and London Stock Exchange Group have entered into a strategic partnership with Microsoft, who will take a stake in the exchange and data provider. All proving, that if the UK market remains untouched by UK investors, then foreign investors won’t need to be asked twice to buy these high-quality assets at very good valuations. 

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.