Recent UK data indicated that the February composite PMI rose further to 53.3, reflecting a modest expansion in an environment where costs have continued to increase due in part to higher labour costs as well as rising freight costs linked to the Red Sea crisis. In Europe, the ECB has made significant progress in reducing the February inflation rate to 2.6% after it peaked in October 2022 at 10.7% with lower natural gas prices contributing to the decline. However, with unemployment at record lows, policymakers are wary of moving too aggressively in lowering interest rates, and have indicated an increasingly clear preference to see how wages trend before making a decision to adjust interest rates. This was made clear by the US Federal Reserve member, Christopher Waller, when he said on Thursday that policymakers should delay interest rate cuts for at least another couple of months to see if the recent uptick in inflation signals a stalling of progress towards price stability, or whether it is just a bump in the road.

These cautious comments appeared to be ignored by the stock markets as the NASDAQ continued to power along, up by 6.12% for the month. The S&P500 also benefited from the positive sentiment in the equity markets, reporting an 5.17% improvement over the month as did the MSCI which was up by 4.11%. The UK markets remained in the doldrums, with the FTSE down by 0.01%, the FTSE 250 down by 1.57%, the Small Cap Index down by 0.62% and the AIM All-Share index down by 2.42%. The Athelney portfolio declined by 5.6%, during the month and after allowing for expenses, including additional audit and related fees, the NAV reflected a decline of 5.86%.

The under-performance in February for the most part was due to a material decline in the value of our holding in Close Brothers (CBG) following an announcement by the FCA of a review of historical motor finance commission arrangements. The financial impact of this on the group is difficult to determine and when the CBG board decided to not pay any dividends on its ordinary shares for the current financial year and indicated that the reinstatement of dividends will only be reviewed once the FCA has concluded its review, we sold our entire holding. We also sold our holding in Target Healthcare and top sliced our holding in 4Imprint and the NWF Group, adding to our position in XP power, London Metric Property and introducing WISE to the portfolio.

Wise is a high-growth, high-margin, founder-led tech business focused on reducing the cost of cross-border money movement in an extremely inefficient legacy banking network. The intermediary-heavy nature of this network creates pressure to keep fees high, as does banks’ short-term profit motive to continue earning the highly profitable income stream from the cross-border transactions.

Our cash holding at month end increased to 6.2% of the portfolio.