The Sceptre UK Fund was down 1.7% in September and underperformed the FT All Share index which had continued very strong performance from oil and other commodity stocks – we do not hold commodity stocks (please see below for our reasons).

Our portfolio remains a very concentrated (15 names) UK focussed fund with investments in companies which are generating healthy and predictable cash flows – or will be generating healthy cash flows following recent restructuring/changes. We are as happy to hold a zero growth stock as a growth stock, all that we require is a reliable (conservative) estimate of future cash flows and a wide undervaluation of those cash flows by the market. Clearly a company whose earnings are growing by 5% a year is worth more than a zero growth company, but the margin of that extra valuation may leave the zero growth company undervalued – particularly when capital expenditure is significantly less than depreciation and free cash flow is therefore much higher than profit after tax.

Chris Broadhurst
CEO