Year-to-date (end of August), the FTSE Small Cap index is +22.7%, FTSE 250 +17.6% and FTSE 100 +10.2%. To cherry-pick a few international indices for context, the S&P 500 is +20.4% in 2021, FTSE Europe (ex-UK) +12.2% and the Shanghai Composite is +2.0%.

We have always argued that we, as UK nationals and investors, are incredibly lucky to have at our disposal large and liquid financial markets where the rule of law applies. The FTSE seems to (unfairly) be a popular market to criticise for all the Brexit reasons that we have heard many times over (thank you the BBC, Economist, Robert Peston, etc) but, in my opinion, this argument is tired and recent events in Chinese markets are a fresh reminder of what can happen when the people answer to their government and not the other way around (to paraphrase many wise people). Private equity investors have also realised that London markets are open for business and the fact that many UK-listed businesses are still trading at notable discounts to international peers. This has led to a substantial spike in overseas takeovers of UK businesses in 2021, names such as Morrison’s and Meggitt are making the headlines as acquisition targets, but in fact, 2021 is set to be a record for takeovers across the market cap scale.

Within these buoyant markets, we have largely sat on our hands and allowed the Fund to perform for itself. Our only activity of note was to add to our position in Fevertree Drinks, where shares have been lacklustre of late. Fevertree could well be just such a takeover target given its market leading tonic brand and increasingly popular premium mixers, such as cola and sodas. These non-tonic products are specifically designed for American pallets, where “dark spirits” are far more in vogue – while us Brits love a crisp G&T, our American cousins are fonder of a bourbon and ginger beer or tequila and club soda. Fevertree grew sales in the US by 42% during the first six months of 2021 and that is in spite of COVID-19 restrictions.

While we are on the subject of America, it is worth highlighting Somero, one of the Funds two US-domiciled names. Somero, the maker of machinery used in flattening concrete, have been the beneficiary of resurgent construction markets in the US and shares have performed handsomely for the Fund. We met with management this week and were pleased by their record revenues, profits and operating cash flow. US sales are up 83% this year, as well as international markets (in particular Europe & Australia +80%). Sales in North America were driven by strong demand for warehousing for e-commerce. It was also encouraging that despite COVID-related challenges, Somero were successful in the delivery of every order for their customers. If you want to get stuck down a wonderful rabbit hole, it is well worth giving Somero a search on YouTube to see their new laser and sky screeds in action.