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UK Mid Cap strategy - Notwithstanding the effects of the global pandemic, we have seen some encouraging company results

  • 12 May 2020 (5 min read)

Key points:

  • Equity markets bounced back in April
  • Company support from banks, shareholders and governments provides reassurance
  • Government plans to reopen economies supportive of recovery

What’s happening?

Global equity markets rebounded in April. Markets benefited from the accommodative monetary support provided by global central banks, a slowdown in new coronavirus cases, hopes of a potential treatment and the lifting of lockdown measures in some countries towards the end of the month. Leading to an increase in optimism that economic activity will begin to recover.  

In the UK, we saw a reversal of March’s large vs mid cap company performance. Mid cap companies (represented by the FTSE 250 index) rose by 9.0%1 in April, outperforming large cap companies (represented by the FTSE 100 index) which returned 4.0%1 . Oil price volatility negatively impacted the UK energy sector. Royal Dutch Shell announced its dividend would be cut – its first cut since World War Two.

Results from companies so far have reflected the significant disruption being caused by the COVID 19 pandemic. While it is too early to draw broad conclusions, we remain optimistic about the maintenance of productive economic capacity as a direct result of the financial support being offered to companies from banks, shareholders and governments. We continue to monitor how management teams are reacting to the current situation and are optimistic of economic recovery over time.

Portfolio positioning and performance

Equity markets have been both volatile and challenging in recent weeks, due to the unfolding economic and social effects of the coronavirus. The UK Mid Cap strategy has performed positively in April, as well as outperforming the FTSE 250 ex IT index. The strategy’s underweight position in the Financials sector proved to be a positive contribution to outperformance.

Performance within the Consumer Services sector was a little more mixed. General Retailers contributed positively over the month. Both Boohoo, an online global fashion retailer, and Dunelm, a home furnishing retailer, saw their share price increase in April, contributing positively to the strategy. However, the underweight to Travel & Leisure companies detracted from performance, as this sector experience a rebound.

Notwithstanding the effects of the global pandemic, we have seen some encouraging company results. Boohoo reported strong results for the year to February 2020. Since mid-March 2020 there has been a decrease in year-on-year growth, however performance has improved in recent weeks. With its flexible business model, it has been able to adapt its proposition for the current environment. The acceleration in the shift to online should benefit retailers who are best positioned in this space. We’ve also seen the share price of Fever-tree, a producer of premium drink mixers, rise in April. While the coronavirus pandemic is weighing on sales from bars and restaurants, sales through off licences, convenience shops and supermarkets were strong.  

During the month we started a position in Chemring Group, a manufacturer of technology products and services for the aerospace, defence, and security market. Our holding in ConvaTec Group, a manufacturer of medical and surgical equipment, was increased. We reduced our position in On The Beach, an online retailer of beach vacations. We remain supportive of the business, but feel uncertainties created by the coronavirus may continue to negatively impact the travel industry.

We continue to focus on company balance sheets, given the short term pressures on corporate profitability. The implications of company announcements remain critical to longer term recovery potential. 


The full impact of the coronavirus on the global economy will not be fully known for some time. However, we are encouraged by signs of a slowdown in the pandemic and plans of how economies can safely reopen and begin the gradual process of normalisation. Central banks and governments have provided unprecedented stimulus measures in order to provide support to economies and markets, while companies are cutting dividends, deferring capital expenditure and reducing headcount in response.

We remain focused on UK and internationally-exposed businesses, where the fundamental profit drivers remain entrenched and equity holders benefit from the capital allocated and risks taken by management. We continue to believe that a rewarding strategy is to actively invest in UK-listed companies that are compounding their earnings and dividends, where corporate governance is world leading, where contract law and title law are dependable, and where company management teams are permanently accessible.

The Manager is still able to interact and review strategy and stock ideas with colleagues, while liaising with the management of our portfolio holdings, seeking to assess their current remedial actions and financial robustness. Notwithstanding the limited visibility, the Manager remains committed to identifying longer term structural trends, reliable and growing companies, consistent with the application of the existing UK Multi-Cap strategy investment philosophy and process.

No assurance can be given that the UK Mid Cap Strategy will be successful. Investors can lose some or all of their capital invested. The UK Mid Cap strategy is subject to risks including; Equity; Smaller companies risk; Liquidity risk.

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