US economic data has continued to beat expectations with the advance estimate of real GDP increasing by 2.4% in the second quarter, exceeding expectations. While there was a continued decline in residential investment due to elevated mortgage rates, overall business spending was strong with spending on equipment up by 10.8%, structures by 9.7% and intellectual property products up by 3.9% on an annualized basis.  As highlighted in last month’s commentary, China’s economy has continued to lose momentum with second quarter GDP increasing by 0.8% over the previous quarter but well down from the 2.2% growth seen in Q1. On an annualised basis, Q2 GDP at 6.3% was well below consensus of 7.1%.

Similar to China, both the Eurozone and the United Kingdom have continued to lose momentum. In the Eurozone, both the July manufacturing PMI and the services PMI fell more than expected with the composite PMI down at 48.9.  The European Central Bank raised its Deposit Rate by 25 bps to 3.75% but was cautious in offering any guidance about policy beyond this July meeting. In the United Kingdom the July manufacturing PMI declined further to 45.0, while the services PMI fell quite sharply to 51.5. However, even though the decline in core inflation to 6.9% was a pleasant surprise, inflation trends remain well above the central bank’s target and wage growth has not shown any signs of slowing.

A number of other central banks have reported seeing not only a reduction in inflationary pressures but also a slowing down of economic performance in response to the higher interest rate environment. Interest rate increases have been put on hold as a result, which has led to the MSCI increasing by 3.3%, driven again in large part by the technology stocks in the US.  The NASDAQ had another excellent month, up by 4.1% with the S&P500 up by a slightly lower 3.1%. In the UK, while the broad market as represented by the FTSE 250 Index was up by 4.0%, the larger companies did not perform as well which is evidenced by the FTSE 100 increasing by only 2.2%.  Smaller companies performed slightly better with the Small Cap Index up by 3.2% while the AIM All-Share Index was up by 1.5%.  The Fledgling Index fared the worst and was up by only 1.0%. By comparison, the Athelney portfolio was up by 3.6% and, after providing for the expenses, the NAV was up by 3.3%.

During the month we continued to reduce our exposure to the property sector, selling down some of our holding in the Target Healthcare REIT and T Clarke.  Cash was used to increase further our exposure to the AEW UK REIT and Cake Box with our cash holding at month end comprised 4.8% of the portfolio.