There was plenty of volatility over October to keep us busy in the Fund. As prime ministers came and went, we continued to strengthen the portfolio through choppy markets, taking advantage of some beaten-up stock prices.

UK markets were quite understandably hit hard as Downing Street at times in October resembled the Muppet Show, just far less entertaining. FTSE 250, small cap and AIM stocks have borne the brunt of the UK sell-off this year and the negative sentiment has been exacerbated by big outflows from a number of large funds in this space. Liquidity in small caps can be thin at the best of times, but in a year when the largest investors in the sector are all trying to raise cash, the knock-on effect has been magnified. Across the funds market, the Calastone Fund Flow Index shows that UK equity funds saw £1.9bn of outflows in August, £2.3bn in September and (a comparatively better) £422m out in October (Source: Fund Flow Index – – this is an unloved sector.

We are lucky enough that the majority of the Fund’s capital comes from our own clients, so we have not seen outflows. This has allowed us to add steadily to our core quality holdings and also to add a select few new names to the Fund. During October we added to our holdings in antibody supplier Bioventix, the London pubco Fuller’s, pork and poultry products producer Cranswick and the US’s leading cement screed business, Somero. These trades were funded from existing cash and from the sale of Renalytix and Peel Hunt, two businesses that have had a tricky year and where we feel that the cash could be put to work elsewhere.

We also had the opportunity to initiate a new investment in Games Workshop (GAW), a company that we have admired for many years, but never seen the valuation low enough for us to invest – 2022 volatility gave us the chance to begin to build a position at last. Through their Warhammer product, GAW have a remarkably loyal customer base of games and exactly the kind of pricing power that we look for in a business – a Warhammer 40,000 starter set costs £65! GAW is a conservatively run business, with a robust balance sheet and high margins – this is a business that we expect to come through tricky economic times stronger than ever as they continue to expand into the key US market and steadily recover the increased input costs that have been a particular worry for investors this year. GAW is a business run with a genuinely long-term view and one that we hope to hold in the Fund for many years.

We tentatively note that the small cap sector has enjoyed a better few weeks since Rishi Sunak has been appointed PM and we hope that this will act as a catalyst for renewed faith in the sector. There are some brilliant British businesses here and their share prices have rarely looked so cheap.

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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