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Past performance is no indication of future returns.
February was a very strong month for European
small caps, with our index returning +6.7% in
Sterling terms. This was again well ahead of
their large cap counterparts and the majority of
global indices. Our NAV return was marginally
behind this, however, we are pleased to capture
the majority of this increase. The strong returns
can in part be explained by a refocusing of the
investment community away from the theme of
global growth which has come under pressure
as emerging markets have struggled, towards
domestic recovery in Europe of which the
principal beneficiaries are smaller companies.
While valuations are not as obviously cheap as
they have been, we think they remain supportive
particularly when considering a potential recovery
in profits which remain well below previous levels.
February was dominated by full year results
announcements, which have been mixed for
the portfolio. On the positive side one of our
largest positions Aareal Bank had strong results
showing improving returns, strong capital ratios
and an improving dividend. This is inline with
our investment thesis. However we have since
reduced the position as the strong performance
has closed its valuation discount, although it
remains a core holding in the portfolio. Plastic
Omnium, the auto supplier, also had strong results
and rose +30.7% during the month. We continue
to believe that the valuation is very attractive.
However, on a more negative note we had some
poor results which impacted some of our holdings.
SHW one of our recent purchases fell -8.2%
following full year results as they announced
a more subdued outlook then expected. Since
purchase in November last year, we have made
some good money on this position, however
expectation had moved ahead of reality and a
conservative outlook has now brought the two
back in line. EFG the Swiss private bank, also
performed poorly following their results. Again the
outlook was below market expectations with client
risk appetite remaining subdued despite more
buoyant financial markets. For both companies
we think that these are temporary setbacks and
continue to believe in their prospects.
As at 28 February 2014
The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market movements. Past performance is not a guide to future performance. When you sell your shares, you might get back less than you originally invested. If markets fall, gearing can magnify the negative impact on performance. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Emerging Markets, Unquoted Companies and Smaller companies carry a higher degree of risk and their value can be more sensitive to market movement; their shares may be less liquid and performance may be more volatile. The fund may invest in hedge funds or private equity funds which are not normally available to individual investors, exposing the fund to the performance, liquidity and valuation issues of these funds. Such funds typically have high minimum investment levels and may restrict or suspend redemptions or repayment to investors. The asset value of these shares and its prospects may be more difficult to assess.
* The Board has stated that barring unforeseen circumstances it will pay an annual dividend equivalent to 6% of the NAV. The dividend is funded from a combination of accumulate capital gains and income but the dividend may fluctuate. Dividend payments may constitute a return of capital in whole or in part and may be achieved by foregoing future capital growth.
23 April 2014
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