The Sceptre UK Fund was up 16.9% in March compared to a rise of 2.8% in the FT All Share index. This is our best month’s performance in the 4 year track record for the Sceptre UK Fund and was a continuation of a trend that appears to have started when the fund reached its low in November. The fund is now up by 23% since the end of October and by 12% YTD which are relative outperformances of +32% and +23% YTD versus the FT All Share index. The performance since the 21st November low has seen the fund gain almost 37% whilst the index is up by almost 5%.

Whilst there can be no certainty, we remain confident due to the extremely low valuations prevailing, that although we will continue to read bad economic news, there is a distinct ‘shift’ happening as investors start to move from being afraid to be exposed to the stock market to being afraid not to be exposed to the stock market.

The large move for the fund in March was spread across the stocks in the fund, bearing in mind that we run a very concentrated portfolio of 15 names with 5 of these names currently making up 66% of the fund. These gains have not come from small cap stocks - the average market cap of these 5 holdings is £1.4bn and the smallest holding is £204m market cap.

Of the 16.7% rise:

Holding 1 contributed 5.7%
Holding 2 contributed 1.9%
Holding 3 contributed 6.3%
Holding 4 contributed 1.5%
Holding 5 contributed 2.0%
Residual contributed -0.7%

The fund peaked in the Summer of 2007 at a time when we had a cash weighting of over 20% but we were too keen to become fully invested again (by February 2008) and have spent the past 12 months shifting weightings from “cheap” stocks to “cheaper” stocks. In order to put a quantifiable measure on this creation of value in the portfolio we have been monitoring the latest weighted book value of the fund on a daily basis and comparing that value to the NAV of the fund. Since the start of this series (September 2008) the fund has moved from a valuation of 1.3x book value to a valuation of 0.7x book value as we have continued to increase our weighting in even better value holdings. Bearing in mind that we target investments in businesses which can make 15-20% ROCE with appropriate levels of gearing – this should be a good indication of the value that we believe is now in the portfolio.

We know that we still have many uncertainties in the economic outlook and for our companies earnings potential but we are comforted that these companies have strong balance sheets, minimal funding issues, strong cashflows and experienced management. Our own estimate of fair value for the fund is more than 3x the current price and are looking forward to further recognition of this under valuation continuing.

If you would like to know more about the fund’s current portfolio, please let us know.

Chris Broadhurst