Fund manager commentary
Stock markets rose again in February after the consolidation in January, as fears surrounding emerging markets dissipated to a degree. European markets were notably stronger and Asian stocks also rallied nicely. The NAV and share price advanced, albeit not by as much as the Benchmark.
Stock selection in February was generally disappointing, particularly on the UK part of the portfolio. Hyder Consulting and Digital Barriers announced profit warnings, and a number of our resources stocks came under pressure. More positively, shares in storage company Safestore rose as the company announced solid trading and moved to strengthen its balance sheet by way of a placing, while Amerisur Resources rose after another successful well result in Colombia.
In the US, we were just behind the Russell 2000 index. Retailer Conn’s announced disappointing results and lowered earnings guidance because of weakness in the company’s credit division. FTI Consulting, a provider of specialty consulting services, released earnings guidance that was below expectations. On the positive side, shares of Pernix Therapeutics Holdings (a producer of paediatric medicines) surged after the company appointed a new CEO, secured financing and settled legal liabilities, while ICF International lifted its earnings expectations.
Corporate news on the European portfolio was mixed. Pleasing updates from automotive supplies business Plastics Omnium and Aareal Bank were offset by cautionary announcements from another car parts business SHW and wealth management business EFG International, while sausage skin company Viscofan also lagged as indications of a weaker market backdrop emerged.
Japanese small caps lagged performance in Asia as a whole, with investors seemingly losing confidence in the reform agenda of the government and the near term economic outlook ahead of the upcoming increase in sales taxes. We added to our Japanese fund holdings on the weakness, and also topped up the Scottish Oriental Smaller Companies fund as its discount widened out to an attractive level.
As at 28 February 2014
The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market movements. Past performance is not a guide to future performance. When you sell your shares, you might get back less than you originally invested. If markets fall, gearing can magnify the negative impact on performance. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Emerging Markets, Unquoted Companies and Smaller companies carry a higher degree of risk and their value can be more sensitive to market movement; their shares may be less liquid and performance may be more volatile. The fund may invest in hedge funds or private equity funds which are not normally available to individual investors, exposing the fund to the performance, liquidity and valuation issues of these funds. Such funds typically have high minimum investment levels and may restrict or suspend redemptions or repayment to investors. The asset value of these shares and its prospects may be more difficult to assess.