Economic activity remained relatively resilient across the major developed economies. The US economy expanded at an annualised rate of 2.2% in the second quarter, supported by consumer spending and investment, including continued strength in data-centre construction. Against a backdrop of persistent inflationary pressures, the Federal Reserve raised interest rates by 25 basis points in September, its first increase since 2023. The Eurozone economy grew 0.6% during the quarter and 1.2% year-on-year, although growth remained uneven across the region. In the UK, second-quarter GDP growth was revised up to 0.5%, with the economy expanding 1.4% year-on-year, supported by services, construction and net trade.

Global equity markets were mixed during September as continued enthusiasm surrounding artificial intelligence was offset by rising energy prices, persistent inflation concerns and a sharp increase in government bond yields. The rise in long-term yields proved an increasing headwind for equity valuations, particularly for smaller and more highly leveraged companies, while large technology businesses continued to benefit from expectations of substantial investment in AI infrastructure. In the United States, the S&P 500 declined 0.5% during September, while the technology heavy Nasdaq Composite gained 1.9%. The headline numbers disguised considerable divergence beneath the surface, with gains increasingly concentrated among the largest technology companies.

The UK market was similarly affected by higher bond yields and inflation concerns. UK inflation increased to 3.1% in August, while higher energy prices added to concerns that inflationary pressures could prove more persistent than previously expected. The Bank of England left interest rates unchanged during September, although markets increasingly contemplated the possibility that monetary policy would need to remain restrictive for longer. Against this backdrop, the FTSE 100 declined 2.0% during the month. UK mid and small-cap companies also weakened. The FTSE 250 declined 1.6% in September, while the AIM All-Share fell 2.93%. Our portfolio declined by 2.20% while the NAV decreased by 3.91% for the month, after paying all fees, expenses and a 2.4p dividend.

During the month, we added to our holding in Rightmove and trimmed our position in Cake Box Holdings. We initiated a new position in Unilever, a global consumer goods group with brands spanning Beauty & Wellbeing, Personal Care, Home Care and Foods, reaching around 3.7 billion consumers daily across 190 countries. The company has built a differentiated position through disciplined brand investment and innovation, supporting continued volume-led growth.

September saw generally positive trading updates across the portfolio. Boku delivered 11% underlying revenue growth, with total payment volume up 16% and continued diversification across wallets and account-to-account payments. Fever-Tree grew revenue 8% in constant currency, supported by US momentum and a UK recovery. Keystone Law Group reported particularly strong trading, with revenue up 23% and adjusted PBT up 31%, prompting an upgrade to full-year expectations. Raspberry Pi delivered record results, with revenue up 90% and EBITDA more than doubling. Yü Group maintained strong growth, with revenue up 19% and meter points increasing 43%, while NWF reported mixed trading but maintained guidance. S&U grew revenue 11%, although higher receivables resulted in increased borrowings.

The largest contributors to performance during the month were Keystone Law Group, Raspberry Pi and Boku Inc, while Autotrader, AEW UK REIT and Dunelm were the largest detractors from performance.