The market edged higher again, helped by lower interest rate expectations, a reasonable earnings season and (for the UK market specifically) a weaker pound due to on-going Brexit uncertainty.

More than 80% of holdings have released results since the start of July. The aggregate portfolio is making reassuring progress despite quite a challenging global backdrop. We are particularly impressed with companies that remain clearly focused on factors they can control (thinking and investing for the long-term, putting customers at the heart of plans etc.) despite economic and political uncertainty.

The fund rose +2.7% compared to a rise of +1.7% for the IA UK All Companies sector and +2.0% for the FTSE All-Share. The strongest contributors were Burberry, Compass Group and Procter & Gamble, all of which released results that were taken well by the market. The most negative contributors were Sage Group and Spectris who also both released results. There was some disappointment that Sage’s margin progress is likely to be limited over the next year or two as management continues to invest in customer service and innovation. However, it was encouraging to see revenue growth of +5.3% over the last quarter driven by +11.4% growth in recurring revenues, which now represent 85% of total revenue. For Spectris, interim results were solid but management noted some weakness in industrial production end markets. We like Spectris long-term given its attractive position in test and measurement markets and a highly cash generative business model.

In the context of this year’s strong stock market recovery, we are treading carefully and continue to work hard at striking a sensible balance between quality and valuation appeal in the portfolio. We continued to reduce several holdings for valuation reasons including Diageo, Compass, Smith & Nephew, Cisco and Microsoft. We also reduced Burberry following its significant rally this month. Positions we added to included Reckitt Benckiser, Hays, Victrex and WPP.

Hugh Yarrow 31 Jul 2019
Show more