February saw reasonably strong equity markets. Performance, especially towards the end of the month, was led by those stocks deemed to be rising rate beneficiaries and/or ‘reopening beneficiaries’. This market leadership was the result of a significant move higher in long term interest rates as inflation expectations moved higher. We fared reasonably well in this tough environment.

Our best performing positions included Bawag, IAG and Dialog Semiconductor. Bawag, the Austrian bank, rallied after announcing strong numbers with the intention to return a significant portion of excess capital to shareholders. This remains one of the better performing banks in Europe and one of our two bank holdings. IAG, a position that we had initiation in Q4 last year, has worked very well for us and the shares continued to rally strongly in February, led by increasing investor enthusiasm on the prospect of a relatively near-term recovery in international travel. Dialog Semiconductor was the subject of an all-cash bid from the Japanese company Renesas. We have since exited the position.

In a month of rotation towards interest rate beneficiaries, our worst performing positions included some of our higher quality (and highest valuation) companies. Delivery Hero, the German takeaway food delivery business fell, as did Cellnex, the Spanish telco towers business and RWE, the German renewable energy focused utility company. We remain unconcerned about the long-term outlook for these positions and have maintained significant weightings.

We sold our position in Total during the month. It is worth mentioning that we now have zero direct exposure to the Energy sector where we struggle to find valuations attractive enough to outweigh the structural pressures being faced.  We initiated positions in Sinch and Northern Data. Sinch is a provider of Communications Platform as a Service (CPaaS). It serves some of the largest technology companies in the world and is a market leader with broad based service offering. We see attractive structural growth and high and sustainable margins and return on invested capital. Northern Data owns and operates high-spec data centres serving multiple growing end markets.

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.

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