The Fund aims to achieve consistent capital appreciation over the longer term by investing in stocks of primarily UK-listed large and mid-sized companies. Up to 10% of the Fund may be in international stocks. A thematic, top-down process is used to identify stock ideas and then married to a rigorous approach to valuation. Portfolio construction is benchmark-unaware with roughly equally-weighted positions in typically 30-40 stocks reflecting high conviction management.

September saw a return of uncertainty in both politics and the pace and shape of economic recovery as Covid-19 infection rates surged again. The trajectory of the pandemic, presidential tweets and Brexit negotiations remain impossible to predict. 

One of the ways in which we’ve been making the Fund more resilient to these external shocks is to own businesses that offer diverse sets of cash flows, both in geography and activity set. There are some excellent UK-listed global businesses which benefit from both the diversity and long-term growth runway that operating across multiple areas gives them. 

Smith’s Group is a company which meets these criteria, and we caught up with the management team after the company’s results during the month. Smiths is a large and long-established engineering conglomerate. Its industrial seals business is heavily weighted to recurring revenue aftermarket sales and safety-critical environments, making it less volatile than industrial companies reliant on the capital goods cycle. Its detection business performed well as structural growth drivers for better security in public spaces have not been diminished by the pandemic. Its businesses exposed to aerospace and automotive understandably did less well. However, reported revenues were up slightly year-on-year at the group level, demonstrating the benefits of its diversity. 

Both the chairman and chief executive are engineers by training and are committed to investing in research and development in order to drive growth. The group spent £119m on R&D last year,  a 7% rise on 2019, and new products developed over the last three years now account for 20% of group revenues, a 54% increase from the previous year. The management team are continuing to increase investment and remain committed to a strong balance sheet. We were supportive of their decision to cut the dividend in order to maintain operational flexibility and continue to fund growth opportunities. 

The Covid-19 pandemic has highlighted to the world the need for engineering and medical-led solutions. Smiths has played an important role, and alongside its partners, this spring, the group went from manufacturing 100 ventilators per month, to 1,000 per week. Smiths Detection is currently testing new breathalyser devices that can measure viral load both in people’s breath and in confined spaces like aircraft. 

During the month we took the decision to sell Travis Perkins to zero. The pandemic has stalled the group’s strategy to offload Wickes, its ability to de-gear in the next 1-2 years, and we believe the headwind of accelerated Travis Perkins branch closures will now outweigh the positives of the Toolstation expansion in Europe. 

Given the return of virus headlines, PZ Cussons was a strong performer as its Carex business continues to be a beneficiary of better hand hygiene. Our weakest stock was Whitbread, which will suffer as restrictions on movement return. 

Data shown net of fees, net income reinvested. Performance of other share classes may vary and is available on request. Please note that all fund performance is shown against the FTSE All-Share TR Index. Where shown, monthly returns table shows compounded discrete monthly performance.

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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 annual management charge is deducted from the capital of the Fund. This will increase the income from the Fund but may constrain or erode potential for capital growth.