The rudimentary data of the second quarter appears to indicate a rather dull, flat period… which couldn’t be further from the truth. In the space of four market days, the FTSE 100 dropped 10%-plus (a technical correction) as the fears of a much wider fall out from Trumps Liberation Day intensified, before the market snapped back and recovered the entirety of the losses within a couple of weeks.

Times like this throw up opportunities for us to initiate in businesses that we have often long-admired but have not been able to justify the valuation to invest in. One such example is Games Workshop, who we have held in our smaller companies fund since 2020, but not in our large cap portfolio. Games Workshop was founded in Nottingham in the 1970s, where all of its production still takes place. The threat of tariffs on this UK manufactured but globally revenue dominated business hit the stock hard, as shares fell 12%, before we quickly built up a position. We believe the business has exceptionally strong IP, from board games to the soon-to-be released live-action Warhammer TV series, commissioned by Amazon. Trump’s tariffs board showed that the company would take a 10% hit on exports to the US (North America accounts for over 40% of sales). However we believe that the IP and customer loyalty to the Warhammer brand would be elastic enough to countenance a 10% tariff for consumers and initiated in the stock at £125. This was funded by the continuation of the exits in our more domestically focused UK names; Greggs and JD Sports Fashion, who have both now fully exited the portfolio. 

In early April, we used our cash position to top up ARM, Sage, Beazley and Halma who had all been duly whacked. We topped up Croda, who issued encouraging statements in Q1 and Q2. Their Consumer Care and Life Science businesses have turned a corner and we are now seeing a string of back-to-back increases in quarterly sales – long may it continue. 

We also topped up Diageo and AstraZeneca. Diageo continues to go through a very painful time for the drinks conglomerate and it is the business we discuss the most. Since the beginning of 2022, the stock has fallen over 50% (or 20% annualised) and has not been a happy place for investors (us included). However, we still believe that the drinks conglomerate has got the brands and the firepower to stage a turnaround, but we would like to see more action in their portfolio with value extracted from stagnant drinks, or if necessary moved on (do Diageo forget they owns Pimm’s?) and newer more dynamic brands purchased and developed. AstraZeneca remains the UK’s largest PLC and a key player in global pharma, but has equally been hit by Trump Tariffs and RFK policy (and rhetoric) on drugmakers. The company made matters worse in June, stating they were making enquiries to leaving the FTSE and moving to the US. If AstraZeneca were to leave the UK, it will probably be disastrous for the domestic market and too late to stop the exodus of firms upping sticks and leaving. 

UK stocks continue to be swayed around by Trump, geopolitics and domestic market inertia (or irrelevance), but the fact remains that the UK is home to some excellent, high quality businesses and we will continue to seek these out. 
 

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.