January saw flattish markets overall, but this hid some violent movements under the surface. Towards the end of the month, we saw the ‘butterfly effect’ of a retail-led short squeeze in a handful of US listed companies, most notable Gamestop. The retail activity in these stocks triggered a wave of hedge fund de-grossing which resulted in some popular stocks being sold aggressively and some popular shorts rallying sharply. We fared reasonably well in this tough environment.

Our best performing positions included Zur Rose, Dialog Semiconductor and Prosus. Zur Rose is a Swiss listed e-pharmacy business that has a dominant position in Germany; a market that is in the very early stages of a regulatory drive towards e-scripts. The shares have re-rated aggressively this year as investors have started to price in some of its potential. Dialog Semiconductor is a French/Italian listed semiconductor company with attractive exposure to the Apple product cycle. In recent months, there have been increasing media reports of industrial peers considering an acquisition of the company; this has helped to buoy the share price. Prosus, a Dutch-listed tech holding company, has been a very strong position for us and continues to benefit from strong underlying trends for Tencent (a business it has a large stake in).

Our worst performing positions included Worldline, Telecom Italia and Embracer. Worldline has suffered from renewed lock-down restrictions being imposed in some of its key European markets. Telecom Italia sold off, alongside it’s sector, on very little news flow. Embracer is a Swedish listed gaming company. The industry is experiencing strong structural growth and on top of this, Embracer is fast consolidating the European market; to some extent this company is starting to look like a ‘European Tencent’ in respect to its large scale gaming business. The shares sold off in January, but we believe this company is well placed.

We sold Alstom in January, whilst initiating new positions in Stellantis and Auto1. With Alstom, we are concerned that we could be in for a volatile period as the financial and operation integration of Bombardier’s rail business gets underway. Stellantis is the business formed by the merger of Peugeot and Fiat Chrysler and we see upside potential. Auto1 was another IPO; it is a German listed online second-hand car business with growth potential.

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.

Glossary

De-grossing: closing of open trades

Initial public offering (IPO): the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.

Short squeeze: occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses.

Volatility: The rate and extent at which the price of a portfolio, security or index, moves up and down. If the price swings up and down with large movements, it has high volatility. If the price moves more slowly and to a lesser extent, it has lower volatility. It is used as a measure of the riskiness of an investment