There is an old market adage that investors should ‘sell in May and go away’. The historical pattern of better returns in the 6 months from November to April was first noticed by the Stock Trader’s Almanac – a US publication focussed on trading strategies - which featured an article about it in 1986. In May 2023 stocks resumed their weakness; perhaps it was faltering Chinese economic data, US political uncertainty, concerns about interest rate rises globally or perhaps it was a return of the Stock Trader’s Almanac’s seasonal anomaly.
Returns on global indices though continue to be held up year-to-date by a narrow band of mostly large cap technology stocks. Such has been the outperformance that the combined weight of five technology stocks – Apple, Microsoft, Alphabet, Amazon and Nvidia – now makes up a record-breaking quarter of the total S&P 500 index market capitalisation. This huge concentration risk being taken on by benchmarks and passive indices provides challenges for active managers in the short term but opportunities in the long term.
An ever-increasing amount of investors chasing returns where the going has been good leaves an ever-diminishing number of investors owning shares where the going may not have been so good. Our challenge in this environment is to find businesses whose economic performance and prospects do not justify their lack-lustre share price performance. Whilst we do not necessarily know when, it is our expectation that shares in these businesses at some point will reflect their comparatively better outlook. In May, we added a new holding to the funds that we felt fit the bill – UK homeware retailer, Dunelm.
Dunelm began life in 1979 as a market stall in Leicester selling curtains and other home textiles. Since then, the business has grown both its in-store and online presence across the UK and now holds the largest share within the UK homewares market at close to 10%. We believe that market share gains and profitable growth has been driven, at least in part, by the business’s stated values that include ‘long term thinking’ and ‘acting like owners’. Those values and ambitions have been and will continue to be easier to carry out when a large proportion of the shares and two of the Board seats remain held by the founding family.
We are pleased to have been able to purchase shares in the business at what we see as an attractive price and look forward to seeing the business continue to fulfil their corporate mission, ‘to help create the joy of truly feeling at home, now and for generations to come’.
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities. At times, the firm or employees of the firm may have positions in securities discussed. Should any conflict of interest arise, these are managed under conflicts of interest policy, a copy of which is available on request.
