The Sceptre UK Fund was up by 0.8% in July compared with a 1.2% rise in the FT All Share index. There was definitely less of a sector bias within the market for the first time in many months with commodity stocks spread across the gainers and losers. However, the better performing stocks were mainly large capitalisation names with a focus on Utilities and Property companies, whilst Life Insurers and Media stocks underperformed.

Our best performing stock (+17%) has significant property assets whilst our next best price improvement came from a Media/Technology company (+14%) and our Lloyd’s Underwriter also did well. Of the underperforming names, two were Media stocks with one retail and one manufacturer also doing poorly, we are part way in to the half year reporting time for many companies and fairly low overall market volumes so that some individual stock movements appear to be more pronounced. We traded only twice in the month adding to one position on price weakness and selling another “slice” of a holding that continues to move higher towards our calculation of its “fair value”.

The Sceptre UK Fund holds about 15 stocks and focuses on those businesses that can maintain margins throughout the economic cycle and whose managers we can trust to invest capital where there is an expected return well above their cost of capital. The businesses in our portfolio are companies which generate significant real cash (or have the potential to do so in the short term) and hold market leading or niche positions in their markets and are therefore better protected from swings in the economic cycle. On a weighted average basis our portfolio is trading at under 10x our estimate of “free” cashflow – that is cash generated by the business after interest, tax and maintenance capital expenditure but before dividends, share buy-backs and any expansion capital expenditure.

This does not mean that we have a portfolio of “ex-growth” stocks – on a weighted average, the portfolio of businesses is growing at almost 15% with some businesses moving from sector slowdowns and/or major company restructuring.

We think this is an exciting time for the Fund and do not see many instances of large over valuations in the market at present which leads us to believe that the overall equity markets form a very good backdrop for the continued excellent performance of the Fund.

As always, if you have any comments or questions, please let us know,

Chris Broadhurst
CEO