Markets continued to rally in June, with investors encouraged by the gradual easing of virus-related restrictions across the world. Towards the end of May, we had observed the start of a marked factor rotation within the market with value/cyclicality starting to outperform growth/quality/price momentum. This move continued to gain traction in June and generally, this will have been painful for those funds that have performed well year-to-date. In that context, and given our very strong year-to-date performance, I am pleased to report that we had another strong month of performance.

Our key positions that outperformed during June were Zur Rose, Vivendi and Worldline. Zur Rose has been seen as a beneficiary of the Covid-19 crisis and of recently approved regulatory change in the Germany pharmacy market. We hope to see Zur Rose increase its German revenues over the coming years. Vivendi is benefitting from the continued strength of the music category as well as its ability to use its rock-solid balance sheet to buy back shares at attractive levels. Worldline has been seen as a beneficiary of the demise of Wirecard; they could win new business from Wirecard or even buy parts of this business and we would see both of these eventualities as positive for the investment case.

Our biggest detractors during the month included AMS, Novo Nordisk and Grifols. AMS had started the month well, continuing the strong momentum from the recent quarterly numbers. However, late in the month, there emerged an article in the German press insinuating that an unnamed member of the management team or board may be being investigated by the Austrian authorities for potential insider trading issues. This was subsequently denied by the company, but the damage was done. We decided to reduce our position from 3-4% to 1.5% to account for the increased uncertainty that has been raised by these accusations. We have made significant profits from this investment since we initiated the position in April and were happy to crystallise some of this profit. Novo Nordisk both suffered from the renewed enthusiasm for buying cyclicality and selling defensive quality.

During the month, we initiated a new position in the Swiss chemicals company Clariant. This is an interesting business that is going through a period of portfolio change, having just agreed the sale for its Masterbatches business and with its pigments business up for sale. These sales move the business far more towards speciality chemicals and in our view, this is not reflected in the return profile of the company nor in the valuation of the equity; a classic ‘Returns Inflections’ investment. In addition to this, the business is 31% owned by the Saudi Arabian company Sabic, who itself has just been taken over by Saudi Aramco. There have been a raft of Swiss media reports that the Sabic stake in Clariant may be up for sale or that Sabic would allow themselves to be diluted if Clariant were to acquire another specialist chemicals company; we see either potential outcome as a positive for Clariant and this enhances our interest in the company.

We are confident in our positioning and will continue to retain balance in our exposures by considering two types of business for investment; those where we see high and sustainable returns that are undervalued by the market and those companies where we can see a material improvement in medium term business prospects.