Harnessing Volatility Through Active Portfolio Management

With the to-ing and fro-ing of a peace deal in the Gulf and the continued upheaval across the software and hardware tech sectors (let alone the market’s anticipation for upcoming mega-IPOs) the fund made several changes across the portfolio. 

There continues to be a wide dispersion of returns across both sectors and individual companies. The portfolio's emphasis on high-quality businesses with durable competitive advantages proved beneficial during the quarter. Information Technology and Financials were the principal drivers of outperformance. 

Selectively Recycling Capital Across the Portfolio

Our position in Arm Holdings continued to be the leading performer for the Fund. The stock tripled across the first six months of the year, and we took substantial profits in June. It remains a key holding. The chip designer has continued to benefit from the AI boom driven by Nvidia and other GPU players, as their mobile-led chips become key components of a world of AI on-the-go. 

We continued to trim our top positions in Halma and Diploma, who have both had (and continued to have) exceptional runs but were keen to diversify our exposure. In place we added to BAE Systems, who came off as the conflict persisted and presented a good entry level for a business that will be at the forefront of British and European defence spending. 

In consumer staples we added to Tesco, initiated a new position in Marks & Spencer and reinstated in Reckitt Benckiser. Funding these we sold down our holding in Unilever, aiming to complete a full switch. We are not enamoured with their reasoning behind selling off (a Reverse Morris Trust of course) their food business to McCormick & Co and do not want shares in the US listed business upon completion. With Magnum Ice Cream Company now gone and the remainder of the food business on the way out, I hope that the board and major shareholders are pleased with the direction of travel for the business. In its place the Fund welcomes back Reckitts and a new position in M&S who have continued to improve themselves across clothing and food. 

In healthcare we diversified our holdings in AstraZeneca and Roche by continuing to add to our new holdings in Genus and Smith & Nephew.

Whilst several long-term holdings including RELX, Experian, Microsoft and London Stock Exchange Group suffered over the period, we continue to believe these businesses possess attractive competitive positions (in relation to AI with their vast libraries of data and IP) and substantial long-term growth opportunities. Our overall conviction in these businesses remains unchanged. 

Another position added to the portfolio was Segro, the Real Estate Investment Trust that primarily operates across ecommerce, logistics and data infrastructure (big warehouses). The stock shot up at the end of the quarter after an unsolicited bid from US operator Prologis, at NAV, which has been rebuffed by the board. 

And finally, in financials, we continued to build our position in Barclays and trimming our position in Zurich Insurance-bound Beazley. We repositioned our Beazley gains into a position in Hiscox, who subsequently had rumours of a Canadian-led takeover. Over the course of time, nothing materialised and we sold the position as its valuation had reached the same numbers as Beazley’s, upon its takeover. As valuation resettles (and if no actual takeover comes to fruition) we will restart a position in the stock. 

As we enter the second half of the year, the portfolio remains focused on businesses with strong cash generation, robust balance sheets and sustainable competitive advantages. We believe the portfolio is well positioned to continue generating attractive long-term returns for investors.
 

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 that 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.