It was a very difficult month for the Trust on both an absolute and relative basis. The Trust’s net asset value fell 11.6% on a total return basis while the FTSE All-Share benchmark fell 8.9%. Coronavirus is causing a demand impact (on demand for flights, luxury goods, beverages etc) and a supply impact as facilities are shut in China and in some cases Northern Italy. We have already seen several companies held within the portfolio materially lower earnings expectations due to the impact of the virus – examples include Vitec (which produces ~50% of products either in China or Northern Italy, it is also exposed to the Tokyo Olympics), Ricardo (which can’t move its consultants around in China, with a large drop through impact on profitability) and IAG (which has withdrawn 2020 guidance on the uncertain demand outlook). We will see further similar downgrades in the coming weeks and the market is moving in anticipation of further downgrades.

Looking at the performance of the portfolio during the month, the largest detractors from performance at the sector level relative to the benchmark were the overweight positions in Industrials and, to a lesser extent, Financials. Several of the small companies held also moved materially including Ten Entertainment (presumably on concern that people will defer their trip to the bowling alley if the virus becomes widespread in the UK), Churchill China (exposed to the restaurant industry globally) and Senior (which attempted to quantify the impact of the 737 grounding on this year’s earnings).

Buying activity so far has been fairly limited. Since the market decline accelerated towards the end of February we have added a small new position in Lloyds (0.8% at month end) and added to the existing holding in M&G (received as a spin out from the holding in Prudential). The holdings in Avon Rubber and Helical have been reduced on better valuation opportunities elsewhere.