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

October was an undeniably tough month for markets and the Fund. Continued macro turmoil propelled the US 10-year to the psychologically important 5% level, precipitating another leg down in cyclicals, financials and mid/small cap assets. The latter’s underperformance has now extended into painful double-digit territory, a significant headwind for most stock picking funds, us included. Meanwhile, at the geopolitical level, an escalation of the Israeli/Palestinian conflict is another deeply sad humanitarian crisis, a further source of global disruption and another stretcher of government balance sheets and leadership mental bandwidth.

This was not a favourable environment to have a perceived ‘niggle’ (whether justified or not) in your company announcements. There was a litany of double-digit fallers on such events globally, especially in Europe and the UK. Whilst we avoided the more egregious cases, we did annoyingly run into a couple late in October, notably in the banking sector, detracting a combined 60 basis points over the period.

We have long observed the deeply out of favour UK, which has increasingly taken on some dysfunctional characteristics. We are not alone in this line of thinking, and it is based on 30 years plus of observed multi-cycle experience and credible, increasingly tangible evidence. The backdrop to this is the relentless barrage of outflows, a trend amplified by an increasing pace of fund closures, mergers and retirements. This has created a bizarre paradox where fund movements are becoming a more influential driver on price formation than the fundamentals themselves. Self-evidently, this is the breeding ground for mispricing and opportunity, but the process of getting there can be littered with not inconsiderable frustration.

Three examples from October help bring this to life. Firstly, Gooch & Housego (G&H), a world class optical component specialist and a significant position in the Fund, announced an excellent trading update, comfortably ahead of market forecasts. The shares initially responded with a healthy and deserved double-digit gain, but over the course of the next few sessions, this dissolved to zero, and ultimately, the shares are now trading below where they were prior to the announcement. And this is for a stock that had already lagged the sector, trades on a massive discount to its global peers and through its valuable embedded positions is a fundamental enabler of the AI revolution. Secondly, and similarly, Rank Group released a strong sales performance and confirmation that the strategic building blocks that can allow it to nearly quadruple profits over the next few years are all on schedule. The result was a a 20% stock price fall.

Finally, and arguably the biggest head scratcher of the three, FD Technologies put out their results for the period. Whilst there was a slowdown in some of the non-core divisions of the group, the most important value driver in the company is its unique software proposition, KX. Like G&H above, it is a fundamental enabler of AI. As a result, it has signed strategic partnerships with the world’s major cloud infrastructure providers and is seeing demand from such deals (in fact a 4x increase in the pipeline in just 2 quarters). As a result of these pleasingly high customer requirements, the company announced an incremental investment programme of £9-10m to help service this and lay the foundations for even faster growth in the future. In different markets this would have been met by trumpets and fanfare; instead toys promptly exited the pram at strong velocity and a veritable puncturing of the price ensued. All are remarkable and indicative of the stunning opportunity for the patient, calm and disciplined investor. 
 

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.