Headlines seemed to switch almost entirely but not necessarily incorrectly, between “Stocks weaker on second wave fears” and “Stocks boosted by vaccine hopes”. Against that, it was pleasing to report a positive relative performance in the CSI Funds with particularly strong returns from some of our globally leading UK businesses such as Renishaw, the Gloucestershire based industrial engineers, Croda, the chemicals company based in South Yorkshire and Games Workshop, the business responsible for making Nottinghamshire the global home of miniature wargames. The latter has been an outstanding performer since our initial purchase in March – we remain excited about the future for this business but would repeat our comments from last month; ‘we wouldn’t expect anything like this kind of price rise to be sustained’.
We think the inverse though could be true for two of our holdings languishing closer to the bottom of the price return leader board.
Shaftesbury saw a 3.2% fall in rental income at their recent half-year results and a 45% fall in their share price YTD; importantly though the balance sheet is strong and we believe that the attraction of their unrivalled 15 acre freehold property estate in London’s West-End (which includes Carnaby Street, Kingly Court and Seven Dials Market) endures. Close Brothers, the specialist lender that aims to ‘help the people and businesses of Britain thrive’, reported earnings per share down 9% at the half years, but with an enviable level of liquidity and their best in class, counter-cyclical model appear well placed to follow the advice of Winston Churchill and ‘never waste a good crisis’. The shares however have been caught up in negative financials sentiment and have fallen 22% YTD.
Whilst valuation is a poor tool for timing, we suspect that these kinds of price falls for such excellent businesses will not be sustained.
Despite these mixed moves at the stock level and muted ones at the index level, certain under-the-bonnet indicators are showing more pronounced and encouraging moves. Chinese stimulus has increased at a rate not seen since the Global Financial Crisis, Copper prices are up nearly 40% from their March lows and the precipitous fall in the Dollar will only help to grease the wheels of the global economy.
The path will certainly not be a smooth one but perhaps risk is yet again weighted to the upside at this juncture at least for certain assets.
James Godrich is the fund manager of the CSI Funds.
