The Sceptre UK Fund was down 4.8% in February compared to a 15bp rise in the FT All Share index. The month was characterised by extreme volatility across the stock market and relatively strong stock price performances from the commodity sector (mining and oil). Whilst it is a poor relative month in performance terms, we have been able to swap 4% of the fund between holdings – moving some of our profits on a resilient holding still trading only a little below our consideration of fair value, into one of our holdings trading at an exceptionally pessimistic valuation.

We have also been busy looking back at how our universe of stocks performed in the last economic slowdowns of 2005, 2002 and 1992. Whilst there is no reliable view on what will happen to the UK (or global) economy over the next 12 months, we are reassured that many of our stocks have not traded more cheaply than they are now at any time in the last 20 years. This assumption is based across a number of metrics including P/E, Yield and Price/Book.

We have a portfolio of 14 businesses where 5 have no debt (net cash) and 9 that have a “tax efficient” low debt level, so the current credit squeeze has minimal direct impact on our holdings. Whilst some of our stocks have intangible assets, most do not and those assets are not mortgage bonds or SIV’s – nor are they likely to be “written down” due to over zealous purchases in recent years.

Our portfolio currently has the following weighted characteristics: [P/E 9.2x, Price/Book 2.1x, Yield 2.9%] Whilst we would describe our companies as value investments, almost all the portfolio is growing with several companies growing annual operating profits at double digit rates. There are few opportunities given to us by the stock market to buy great companies so cheaply.

Chris Broadhurst
CEO