The July rally in risk markets proved to be a mirage and investors have firmly returned to the bearish mood that has dominated this year, with the smaller capitalised indices bearing the biggest brunt.

Despite a welcome decline in the oil prices and commodity sectors in general, consumer costs continued to overshoot expectations and against this context of inflation uncertainty, markets have remained volatile with Consumer Discretionary stocks taking the biggest hits.

As we have done throughout 2022, we took the opportunity of somewhat panicked markets to add to our core positions where valuations have reached discount levels. Subsequently, concentration in our top ten holdings is much higher than it has previously ever been. Over the quarter we added to Croda, Halma, Spirax-Sarco Engineering and Dechra Pharmaceuticals, whilst in the sales ledger we said goodbye to two of our longest-term holdings; Rio Tinto and Smith & Nephew.

We have been trimming Rio Tinto throughout the post-COVID crash commodity squeeze and fully exited the position in early July. We also took the decision to sell our position in medical devices company Smith & Nephew after one disappointing update too many. After consistently underperforming global peers and successive uninspiring management changes, we feel that the business is not the leader that it once was and that the cash could be reinvested in more exciting businesses elsewhere in the Fund. We also trimmed our holding in Compass Group and InterContinental Hotels on the back of a steady recovery in shares since the market depths of 2020.

The subsequent liquidity was reinvested in kitchen supplier Howden Joinery, housebuilder Berkeley Group, mixer-maker Fever-tree Drinks and asset manager Schroders amongst others.

We continue to focus on the fundamentals of individual businesses, looking for a unique company that we believe can grow at steady rates over the long-term. From time-to-time fear will prevail in markets and we get opportunities to invest in such outstanding businesses at more than reasonable prices – now appears to be just such a time.

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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