The Fund aims to achieve long-term capital growth by investing in UK listed companies across the broad market cap range.

‘No landing’ and stagflation are increasingly creeping into the market vernacular as patches of slowing economic growth meet persistently stubborn inflation readings. Despite this, company rhetoric remains extremely positive, most particularly in the UK, where overall performance continues to gently diverge from its US brethren. In fact, the UK appears very much ‘open for business’ as not only does the elevated cadence of corporate activity continue, but also, further, compelling evidence of confidence continues to build. Notably, capital raisings have re-appeared with a vengeance with National Grid’s substantial rights issue, the biggest in the market since 2008, funding its monster £32bn capex upgrade plan for the electricity backbone. Meanwhile, on a smaller scale but no less interesting, there was a similarly proactive deal from Great Portland Estates to fund asset purchases at what they believe is the bottom of the cycle. Unsurprisingly, given all the above and the still gaping valuation discount, the UK market continues to grind higher. This was further bolstered by tentative early evidence of the things broadening out, with the first month of meaningful outperformance of small and mid-cap assets for a considerable period, alongside volumes and block placings picking up, the IPO market beginning to stir and international enquiries continuing to build. These are all classic bull market indicators and should hopefully portend a strong period of returns ahead.

May was another pleasingly robust month for the fund and was again driven almost entirely by stock selection. Similarly, as with prior recent periods, the other important aspect was this was primarily down to better-than-expected corporate developments rather than re-ratings or using up ‘fuel in the tank’; in fact, it was arguably quite the opposite. Good examples of this were Trufin, where profits were ahead of market expectations; Pulsar, which is seeing higher than anticipated revenue traction; and Funding Circle, which had another strong month but was firmly underpinned by the announcement of high-impact efficiency initiatives and an encouraging update on US progress.

Further up the size curve, BT’s results were in line with expectations, but very significantly, the increased confidence in the high-speed fibre rollout and next-generation network potential, which has been apparent in recent engagements with management but on which the market has been sceptical, was tangibly underpinned with a huge cashflow upgrade. Despite a punchy 17% move on the day, the shares are still dramatically under-reflecting the significance of his development and how it will cascade very powerfully down to the equity. Indeed, in an environment where, at the margin, they see less competition, not more, and with the impact of productivity enhancements still to flow through, the shares still trade on a monster free cash flow yield as the capex rolls off and the multi-year transformation starts to truly bear fruit. Our confidence has increased as a result and our position size has done likewise.

The month wasn’t blemish-free, however with a tough (but expected) trading outlook at CMO seeming to panic one or two holders even though the valuation is ludicrous, the balance sheet is better than we thought, and the straws in the wind, suggesting conditions are on the up. In a similar slightly baffling way, Equals Group was a drag as extensions to consolidation talks seemed to sap a little confidence, despite two suitors being in tow and the strong growth being delivered as expected. Like so many assets at this size of market capitalisation, the upside remains hugely compelling, whether that is realised via a deal consummating or the strong organic prospects finally being recognised in the rating. We have bought more and await developments with keen interest.
 

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the FTSE All-Share TR 12pm adjusted. Performance of other share classes may vary and is available on request.Where shown, monthly returns table shows compounded discrete monthly performance. All performance figures illustrate performance from the first full day that the Fund held investments. During the period 6 November 2001 to 7 May 2003 the performance record is based on the pre-existing share class that had a higher management fee.

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Past performance is no guarantee of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The Funds investment include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile.