I am told that by October the majority of the harvest for UK farmers is complete. This was also the case for investors this year as equity markets failed to provide the kind of returns seen throughout most of the summer. Election uncertainty in America combined with renewed lockdown fears in Europe create a turbulent month for investors.
The CSI funds did have certain stocks that held their own in this environment and the top contributors over the month were Dechra Pharmaceuticals and Close Brothers. Despite the global pandemic and recession, some of our largest holdings have provided exceptional contributions to the fund performance so far this year. The podium for our best performing UK equities includes Games Workshop whose shares are up more than 70% YTD (and nearly 200% since our initial purchase in March), Renishaw up roughly 50% YTD and Genus up 30% YTD.
However, these were in part offset during October with disappointing performances from Hargreaves Lansdown and Shaftesbury.
I have mentioned in previous articles about the holdings in Shaftesbury and Close Brothers and said that…”where there is no obvious or imminent catalyst for the valuation to reverse what we believe to be a high quality but cheap company, it may be more appropriate to allocate a smaller proportion of capital.” In part, because of this (and in part because we have found another opportunity), we decided to reduce our holding in Shaftesbury during the month. We were fortunate with our timing here because in the days following the completion of this reduction, management announced a large capital raise (asking existing investors for more cash in return for new and additional shares) that shored up the balance sheet but sent the share price down nearly 15%.
This good fortune in the timing of our sale does not lessen the disappointment at the, at least temporary, loss in the value of our remaining holding and the permanent dilution in our ownership of the business caused by this issuance of new shares.
That other opportunity referred to above came through Workspace - a property business in which we have recycled the capital. Workspace are a flexible office space operator in the UK with 59 buildings located throughout London. The business benefits from high barriers-to-entry as a result of its brand, its impressive freehold assets and its size and scale. We accept that there are significant challenges in this industry at present, but we believe them to be, in the majority cyclical rather than structural and we see the current valuation as an attractive entry point to a high quality operator.
Uncertainty, risk and volatility are high at present for Workspace and throughout equity markets, but this moment will pass and I remain convinced that halcyon days will return. We will continue to plant hardy seeds now in the hope and expectation that they will return a bountiful crop as and when those days do come.
James Godrich, Fund Manager
James manages JM Finn’s Coleman Street Investment funds
Please remember that your capital is at risk and the value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. The views expressed are those of the author.
