UK markets broke new ground in April, as the FTSE 100 moved decisively above the 8,000 level. This was thanks to the strong performance of index heavyweights in the Mining, Oil & Gas, Pharmaceuticals and Banking sectors. Aside from Pharmaceuticals, these are sectors where we have little or no direct exposure and so the Fund lagged the wider market recovery over the start of the quarter. Our general aversion to these capital-intensive sectors is because we do not see these companies as sufficiently high quality for this Fund. While this stance has served us well long-term, from time-to-time we get a cyclicals rally (as we did in April) that largely passes us by.

While we did not make many changes to the portfolio over the quarter, it was certainly a busy month for us, with most of our companies reporting results for their first quarter of the year. We were particularly encouraged to see AstraZeneca shoot the lights out with their Q1 statement. We backed Astras during the depths of their COVID vaccine unpopularity in 2021, building a position in the early part of that year on the conviction that they had a unique pipeline of drugs that would be at the cutting-edge of oncology for the foreseeable future. Astras are delivering just that and we remain happy holders.

Elsewhere, Diploma announced the acquisition of Peerless Aerospace Fastener, a market-leading distributor of specialty fasteners into the US and European aerospace markets for $300m. On the basis of Diploma’s exceptional past acquisition record, this is exciting news for shareholders. Our largest investment, RELX, once again proved their quality with their April trading update. We had a good meeting with their FD and the business goes from strength-to-strength with their new AI-empowered products looking to be gaining particular traction.

As the General Election was called, markets remained in a cheerful mood, with the (now realised) inevitable result and hopeful not-too-distant cutting of rates by the Bank fuelling a growing optimism in the UK stock market. Stocks particularly correlated to a Labour victory, such as Trainline, have been weaker but we had a good meeting with the Director of IR there who reassured us that Labour’s potential nationalisation of the UK railway network would actually be more akin to the French and Spanish industries and would be beneficial to the platform business. 

Our positions in Croda and Spirax-Sarco remain somewhat unloved in the market. In both cases, the businesses have struggled to convince investors that they can move on from exceptional trading during the COVID years and that the future will see a return to steady growth. We believe that each company will indeed surprise the naysayers and that it is only a matter of time, but will remain vigilant on analysing the situation and holding management teams to account. On the same theme stalwart of the fund, Judges Scientific, who have performed exceptionally well over the past 12 to 24 months had seen a negative reaction to their recent trading update which caused a slide in the share price. We felt this was rather overdone and tracking the volumes and news flow on the stock with our brokers over the quarter we added to the position, right at the end of June, at just over £90. 

According to research from Citigroup, history shows that UK equities trade relatively flat to down in the six months after elections with a Conservative victory, but up about 6% following victories by the Labour party. Let’s hope this previous form bears fruit for the rest of the year and beyond… 

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.