The Sceptre UK Fund was up by 3.6% in September compared to a rise of 1.4% by the FT All Share Index

This continued outperformance means that the Fund is now up 10.0% YTD and 18.5% over the last 12 months after all fees and charges – this compares with the Index being up 7.1% YTD and 11.1% over 12 months. Again the activity in the Fund was very low and we traded only in one stock as we sold the last two tranches of our holding. We had held this pub stock for almost 18 months and the price has almost doubled in this period – as the market price approached our own calculation of the stock’s “fair value” we started to sell down our holding which culminated with our closing the entire position as the stock price moved above this “fair value” in September. We believe that the upside in the stock price is now lower than other stocks in the portfolio and new ideas that we are finding and therefore does not warrant a weighting in the Fund.

The 3 largest stocks in the portfolio moved ahead by about 12% each during September – these holdings make up about 30% of the Fund in total and all have still further to rise, in our view – we ended the month with about 11% cash and 15 holdings. We have 3 new ideas for the portfolio which are now in the final stages of evaluation with management meetings/conference calls and target prices below the current market price in place. It may be that we miss the opportunity to buy one or all these stocks should the stock market continue to move ahead but we remain patient and hopeful that the market volatility will present us with even better priced opportunities to add these names to our portfolio.

As you know, our process of stock selection is based on our own calculation of actual or expected cashflows coming from consistent and well managed companies whose businesses are able to maintain (or grow) margins. As such, we do not invest in commodity stocks as we do not have the ability to forecast the future price of the underlying commodity in the short, medium or long term. This major “difference” between our approach and that of many mainstream fund managers was emphasised in a recent Bloomberg interview of an experienced and respected UK equity fund manager who, when asked “where the price of oil was going”, replied that it was a “50:50 bet over the next 3 months and then the direction becomes less certain…”.

Apparently he, like most other mainstream fund managers, still hold many oil (and commodity) stocks in his portfolio but Benjamin Graham would have suggested that this method of stock selection confuses speculation with investment and that he (Benjamin Graham) would prefer to invest with an 80%+ chance of “being right” than to speculate with a 50:50 chance. We agree with Benjamin Graham and continue to avoid commodity based stocks.

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

Chris Broadhurst
CEO