The July rally in risk markets proved to be a mirage and, at the time of writing, investors have firmly returned to the bearish mood that has dominated since late-2021.

Despite a welcome decline in the oil price and in fact lower prices across the commodities sector, consumer costs (in general) continued to overshoot expectations and, against this context of inflation uncertainty, markets have remained volatile.

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. We remind readers that at Church House we focus on owning shares in the highest quality businesses that demonstrate pricing power, strong balance sheets and long-term growth records. It is rare that these shares sell-off as far as they have done in 2022 and history tells us that being disciplined buyers of quality businesses during such periods generates excellent returns for patient investors. Last month we mentioned our addition of kitchen supplier Howden Joinery to the Fund, a business that we had watched from the side-lines for many years, waiting for a chance to buy shares at a discount. We further added to our holding in Howden’s last month, in addition to our positions in industrials Halma, Diploma, Spirax-Sarco and London’s leading housebuilder, Berkeley Group.

We recognise that the macro-economic outlook for all businesses has become tougher in 2022, but we back these businesses to come through this period stronger than ever thanks to their dominant market positions and financial resilience. As we were reminded at a recent company meeting, ‘never waste a crisis’. It is how our investee companies behave through difficult periods that lays the foundations for growth as and when the clouds do part and customers are ready to spend again. To pick the example of our investment in Compass Group, the catering business, they were the only major business in their sector that continued to invest in sales personnel during COVID and are now reaping the rewards with steady market share gains as canteens in businesses, school and colleges do reopen.

We 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 InterContinental Hotels on the back of a steady recovery in shares since the depths of COVID.

At Church House, we focus on the fundamentals of individual businesses, looking for unique companies 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 on behalf of our clients 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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