Fund Manager's Comments

A collection of the Fund Manager's comments and Chairman's Statements. These are extracted from the original Portfolio Details and Accounts that are published on this website.

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September

Earlier in the month the US Federal Reserve reduced the fed funds rate by 25 bps as a result of ongoing global economic weakness and muted inflationary pressures in the US. Furthermore, US consumer confidence was weaker than expected in September, falling 9.1 points to 125.1, while durable goods orders rose 0.2% in August. Non-defence capital goods orders fell by a similar amount and were revised lower for the prior month, indicating that capital spending in the US continues to weaken.

Preliminary economic data for the Eurozone in September was also weak, signalling that the economic slowdown is unlikely to abate. The factory sector appears to be contracting at least as fast as it did during the sovereign debt crisis and it remains to be seen if the recent move by the ECB to cut rates and restart QE will be enough to reverse the current trend.

In the UK, gross domestic product (GDP) was confirmed to have fallen by 0.2% in the second quarter of 2019 with services providing the only positive contribution to growth in the output approach to calculating GDP. Private consumption, government consumption and net trade contributed positively, while gross capital formation contributed negatively to GDP growth, which, compared with the same quarter a year ago, increased by 1.3% to June 2019. The major world markets as represented by the MSCI World Index and the S&P 500 rebounded in September with these indices up by 1.9% and 1.7% respectively. The UK market was also up in with the FTSE 100 Index increasing by 2.8% while the Small Cap Index was the best performing index, increasing by 3.3%. The Fledgling Index did not perform as well, increasing by 1.0% while the AIM All Share Index was the worst performing index, declining by 0.02% during the month. Our portfolio of investments performed better than the market, increasing by 3.1% during the month which, after allowing for expenses resulted in a 2.8% improvement in the NAV. As mentioned previously, the positioning of the portfolio has, to a large extent been completed, with a few smaller names to be sold as we were un-able to find buyers for these illiquid stocks. Accordingly, our positions in M&C Saatchi, Photo-me and Huntsworth were sold increasing the cash in portfolio while adding Abcam to the portfolio.

August

In the current highly volatile investment climate investors once again turned to the glitter of gold rather than the lure of crypto currencies, with gold reaching a six year high of $1,540 an ounce and bitcoin declining to $10,000 as nervous investors looked for a safe haven. Gold is up by 6% over the last month and 30% in the last year as the US/China trade dispute, lower growth prospects for world trade and concerns on the state of the US economy with the US Federal Reserve considering a further cut to interest rates.

The International Monetary Fund (IMF) has lowered its growth forecasts for the global economy for both this year and next year as a result of trade and technology tensions. Global growth is forecast at 3.2 percent in 2019, picking up to 3.5 percent in 2020 (0.1 percentage point lower than in the earlier April projections for both years). The major world markets as represented by the MSCI World Index and the S&P 500 were under pressure in August with the indices declining by 2.2% and 1.8% respectively. Performance in the UK market was overshadowed by politics with the FTSE 100 Index declining by 5.0% while the Small Cap Index declined by only 3.2%. The Fledgling Index was not as badly affected, declining by 2.9% while the AIM All Share Index was the worst performing index, declining by 6.2% during the month. Our portfolio declined by 2.9% during the month which, after allowing for expenses resulted in a 3.1% decline in the NAV. The positioning of the portfolio has to a large extent been completed with a few, smaller names to be sold as we were unable to find buyers for these illiquid stocks. Our position in Greene King, Menzies (John), Latham (James) and Heath Samuel were sold while we added Smart Metering Services and Boohoo to the portfolio.

July

The ongoing spat between the US and China is clearly affecting the global economy which by all accounts continues to slow faster than expected. In the UK, the Bank of England left interest rates unchanged at 0.75% against a backdrop of this weaker global growth, ongoing trade tensions and an expectation that the UK economy would grow by 1.3% this year, down from a previous projection of 1.5% in May. Furthermore, the Bank’s Monetary Policy Committee (MPC), that sets interest rates, indicated that the UK economy was likely to have stagnated in the three months to June. It also warned that a no-deal Brexit would have a negative effect on the economy and trigger a further drop in the value of the pound. The Bank also reduced its outlook for growth in 2020 to 1.3%, from a previous projection of 1.6%. US Treasury yields continued to soften and the major world markets as represented by the MSCI World Index and the S&P 500 continued to improve, increasing by 0.4% and 1.3% respectively. Once again, performance in the UK market was dominated by large caps, with the FTSE 100 Index increasing by 2.2% while the Small Cap Index declined by 1.0%. The Fledgling Index and the AIM All Share Index both increased by 1.1%. Our portfolio which declined by 0.96% during the month had the effect of causing a 1.1% decline in the NAV. As previously mentioned, the review of the REITS has been completed and we have commenced consolidating our holdings into those quality companies in the portfolio which are unlikely to be disintermediated by technological change and able to maintain or increase their dividend over the next five years. Furthermore, we have added a few names that have attracted our attention and to this end, we favour quality companies with an acceptable level of predictable growth in the business’s medium-term economic performance. Our position in Cineworld, Record, Jupiter Fund Management and Heath Samuel were sold while we increased our exposure to LXI REIT and Treatt, adding Churchill China, Homeserve and Fevertree Drinks to the portfolio.

June

The global economy is clearly affected by the trade war and by all accounts is slowing faster than expected. Global multinationals are clearly looking at their supply chains and changing them from higher tariff countries to those unaffected by renewed protectionism and the net effect is that these companies will see margin compression and pressure on overall profitability. Furthermore, if the US and China fail to deliver satisfactory progress on trade negotiations, or the middle east fracas continues to escalate, then the Fed could be forced to reduce rates more aggressively. That said, the reverse is also true if de-escalation of either or both is the order of the day, as was recently the case with Mexico. Against this backdrop, US Treasury yields fell and the major world markets as represented by the MSCI World Index and the S&P 500 all made back the May losses by increasing by more than 6% in USD. Furthermore, June was a month dominated by large caps, with the FTSE 100 Index (+3.69%) increasing by almost four times the rate of increase in the Small Cap Index (+0.96%). In spite of this poor performance by the small and mid-cap stocks, the portfolio produced a reasonable performance with the NAV increasing by 1.12% during the month as compared to the Fledgling Index which increased by 0.45% and the AIM All Share Index which declined by 3.73% during the month. The consolidation of our exposure to the Property sector has been completed and we will now turn our attention to the other sectors in the portfolio where our focus will be to retain and consolidate our holdings into those quality companies in the portfolio which are unlikely to be disintermediated by technological change and able to maintain or increase their dividend over the next five years. To this end, we will continue to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. Our position in Crest Nicholson was sold while we added LXI Reit and JD Sports to the portfolio.

May

The strong start to the year came to an end as the US announced that it would be moving ahead with tariff increases on US imports from China. China responded in like fashion which caused world equity markets to soften during the month. The MSCI World Index, Asia ex-Japan, emerging markets and the S&P 500 all losing more than 6% in USD. US Treasury yields fell, with the markets now pricing in more than three US Federal Reserve (Fed) rate cuts by the end of 2020. The portfolio performed well during the month in spite of the international and domestic political turmoil with the Prime Minister announcing that she is stepping down on 7 June and the various factions in parliament refusing to back her BREXIT deal. After accounting for expenses, the net affect was an increase in the NAV, up by 0.04% as compared to the FTSE Index which declined by 3.5%, the Small Cap Index which was down by 2.1%, the AIM All Share Index down by 1.7% and the Fledging Index down by 0.4%. During the month we continued to consolidate our exposure in the Property sector, which is now down to eleven names. Dividends received in the month continue to be as expected and, in some cases, better than expected. We have turned our attention to the other sectors in the portfolio where our focus will be to retain and consolidate our holdings into those quality companies in the portfolio which are unlikely to be disinter-mediated by technological change and able to maintain or increase their dividend over the next five years. To this end, we will continue to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. Our position in Samuel Heath was lightened while Air Partner, Charles Taylor, Epwin, James Fisher, Goodwin, Hostelworld, Harworth, Ibstock, Ocean Wilsons, River and Mercantile, Schroder Real Estate and Town Centre were sold. We added to our position in Hill & Smith, Custodian REIT, LondonMetric, Regional REIT and Tritax Big Box, with Gamma Communications, Liontrust Asset Management and National Grid included for the first time.

April

Global markets continued their strong start to the year with most regions up during April. U.S. equities continued to perform well with the S&P 500 Index advancing by 3.9% as the Fed kept rates on hold during the first quarter and indicated that there would probably be no further rate increases for the remainder of the year. Europe on the other hand released a series of disappointing Eurozone metrics, signalling a lacklustre start to the second quarter. Consumer confidence continued to drift lower, and Germany’s closely watched LFO business climate indicator fell for the seventh time in the past eight months. In China, the government’s wide range of stimulus measures seemed to be bearing fruit, evidenced by better-than-anticipated first-quarter GDP growth (+6.4%), retail sales (+8.7%) and industrial production (+8.5%).
Following the April 10 agreement between the European Union and the U.K. the fear of government dysfunction around the world abated with the delay of Brexit until Halloween. The portfolio performed well during the month, given the continued political uncertainty, with the NAV increasing by 5.2% as compared to the FTSE Index which increased by 1.9%. The Small Cap Index was up by 3.8%, the AIM All Share Index by 6.1% and the Fledging Index by 1.7%. During the month we consolidated our exposure in the Property sector into fourteen companies with a further three to be removed once they have gone ex-dividend. Dividends received in the month continue to be as expected and, in some cases, better than expected. We will now turn our attention to the other sectors where our focus will be to retain and consolidate our holdings into those quality companies in the portfolio which are unlikely to be disinter-mediated by technological change and able to maintain or increase their dividend. To this end we will continue to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. Our position in Air Partner was lightened while McColls Retail, Wynnstay Group, TP ICAP, Capital & Regional, Schroder European. Trust, Palace Capital and Park Group were sold. We added to our positions in AEW, Lok’n Store, Tritax Big Box, London Metric and Regional REIT. No new names were added.

March

Global markets continued their strong start to the year with most regions up during the month of March. There has been a shift towards defensive and yield-related sectors while cyclicals and financials have come under pressure. The US continued its strong run with the S&P 500 index up 1.8% and the Nasdaq Composite up 2.6%. While equity markets were relatively strong, most of the action was in the debt markets. On 19 March, the US 10-year Treasury note fell below the 3-month Treasury yield. 10-year yields fell to their lowest levels since January 2018 to 2.4%. Dovish comments from the Fed and a moderation in global activity helped drive a fall in longer-term yields. Other global markets were up but not to the same extent reflecting medium to longer-term concerns about European economic growth. The FTSE was up 2.9% which was reasonable given the uncertainty related to Brexit and the inability of the UK parliament to come up with an agreed solution to leave the EU. Asian markets were strong with China leading the way with one of the strongest performances recorded in March. The Shanghai Comp was up 4.8% in USD terms and the Hang Seng was up 1.5%. While the investment portfolio declined only slightly (by 0.1%) during the month, Athelney shares went ex-div on 21 March which resulted in the NAV declining by 4.8% as compared with the Small Cap Index which increased by 0.8%, the AIM All Share Index which increased by 0.6% and the Fledging Index which declined by 11.3%. Dividends received in the month continue to be as expected. Our focus remains on retaining and consolidating our holdings into those quality companies in the portfolio which are unlikely to be disinter-mediated by technological change and able to maintain or increase their dividend, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. To this end we have continued to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, the occurrence of which will result, in our view, in a deterioration in future profitability and hence dividends. Our positions in XLMedia, Quarto and Hansard Global were sold. No new positions were added.

February

As stated last month, the trade and political outlook for 2019 remains unclear. President Trump has walked away from a de-nuclearisation deal with North Korea, a trade deal with China is still in the balance and it does not appear that the Prime Minister has a Brexit proposal that is acceptable to Parliament. However, after an excellent start to the year, equity markets have discarded all of the political noise and continued to power ahead. Most major stock markets around the world were up during the month of January. The Dow Jones Index increased in US$ by 3.67% and there was a 2.83% increase in the MSCI World Index during the month. In similar vein, it is pleasing to report that during February the Athelney Trust unaudited NAV increased for the second month in a row, this time by 1.07%, which compares with a 1.52% increase in the FTSE Index, a 0.88% decline in the AIM All Share index and a 0.9% increase in the Small Cap Index.
Dividends received in the month continue to be as expected and our focus remains on retaining and consolidating our holdings into those quality companies in the portfolio which are unlikely to be dis-intermediated by technological change and able to maintain or increase their dividend, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. To this end we have continued to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, the occurrence of which will result in our view in a deterioration in future profitability and hence dividends. Our positions in Braemar Shipping, Reach, Gattaca, PRS REIT, KCOM and Kin & Carta have been sold while we consolidated our positions by adding to our holdings in Rightmove, Close Brothers and Murgitroyd. We took up the offer in Tritax Big Box, Greencore and Randall & Quilter.

January

It is pleasing to report that the Athelney Trust unaudited NAV increased by 3.27% during January, which compares with a 3.58% increase in the FTSE Index, a 7.01% increase in the AIM All Share index and a 2.29% increase in the Small Cap Index. Most other major stock markets around the world were also up during the month of January. The Dow Jones Index increased in US$ by 7.17% and there was a 7.68% increase in the MSCI World Index during the month.

We are now into the second month of the 2019 year and the trade and political outlook for 2019 is no clearer. What is clear however, is that the US Federal Reserve has decided to relax its stance on interest rate hikes and keep interest rates steady, in the 2.25% to 2.5% range for the foreseeable future. This means that the central bank is unlikely to raise borrowing costs any time soon, providing some stimulus to the market as evidenced during the past month.

Our focus is on retaining and consolidating our holdings into those quality companies in the portfolio which are unlikely to be disintermediated by technological change and able to maintain or increase their dividend, as well as adding companies which have an acceptable level of predictable growth in the business’s medium-term economic performance. To this end we have continued to sell our holdings in companies where there has been a change to the industry structure, the business model, the senior management team or the product/service offering, the occurrence of which will result in our view in a deterioration in future profitability and hence dividends to Athelney Trust Plc. Our positions in F&C UK Real Estate have been sold while we added to our holdings in the AEW UK REIT.

Copyright Athelney Trust. Site updated 18/10/2019