During the past month the MSCI World Index and the S&P 500 were up by 4.63% and 4.53% respectively.  The UK, European and Asian markets reacted in similar fashion.  In the UK, the FTSE 100 was up by 2.97% in local currency terms while the indices associated with smaller companies fared much better as was the case in April.  The Small Cap Index increased by 3.93% with the Fledgling Index up by 6.55%. 

While the re-opening of the economy is getting underway, it remains too early to assess the effect of the re-opening on both the coronavirus infection rate or the structural damage to segments of the economy.  Multiple central banks met this week to assess monetary policy and with inflation well below targets, central banks have leeway to cut rates which should support equity markets. Notwithstanding the decline in the first quarter GDP for the OECD economies of 1.8% over the previous quarter and by 0.8% year-on-year, there is some optimism that the economic downturn could be relatively short-lived.  However, third quarter company results are likely to be the litmus test to see if this is the case.

Since taking over the management of the portfolio we have continued to focus away from “old world” businesses into companies that have future organic growth with predictable earnings, a sustainable competitive advantage, high returns on equity, a strong financial position and an experienced and talented management team.  These companies have been able to weather the Covid-19 lockdown as customers and businesses were forced to utilise and embrace the digital world.  Further to my comment last month I am pleased to notice that more company executives are taking salary reductions as they implement austerity measures in the business, on the staff and in the payment of dividends.

The companies in which we are invested performed very well and we are delighted with the 6.93% increase in our portfolio, the performance of which was only exceeded by that of the AIM All Share Index which was up by 8.02%.  After providing for the company expenses the net performance as reflected in the NAV was an increase of 6.72%. Some of our cash has been used to acquire additional shares in Smart Metering and Begbies Traynor.  We took up our entitlement in Costain and sold out of Wilmington and Mountview Estates.  Cash is currently 3.6% of the portfolio.