During May the portfolio received two takeover approaches from private equity – property developer and owner St Modwen Properties (approached by Blackstone) and aerospace components supplier Senior (approached by Lone Star). This heightened interest by private equity reflects a broader trend in the UK market, with a number of companies being approached across a range of sectors. In our view this private equity interest provides demonstrable evidence of the valuation discount currently attributed to UK equities relative to overseas peers.

May was an active month for the portfolio and new positions were taken in DCC, Devro and Jupiter Fund Management. In the case of DCC, which distributes (among other products) liquified petroleum gas and heating oil for a range of commercial and domestic customers, the de-rating of the shares in recent years, in our view, fails to reflect the history of attractive returns on capital and earnings growth. In the case of Devro, which makes collagen casing products (for sausages), the company is one of two global market leaders. Under a new management team debt has been reduced, and organic growth has shown recent signs of improvement.

We continue to be encouraged by recent trading updates from companies held in the portfolio, as well as supportive lead indicators such as job vacancy levels. Trading updates are demonstrating strength across a broad range of end markets including domestic RMI spend (benefitting companies such as Epwin), US construction activity (benefitting companies such as Somero Enterprises) and a recovery in physical retail spending (benefitting companies such as Marks & Spencer). If there were to be a cautionary note, it would be that we continue to hear of widespread input cost pressures as well as supply outages in some areas.