Fears over inflation becoming embedded rather than a temporary concern and the ongoing increase of COVID cases tempered investor enthusiasm and caused some volatile conditions at times but most companies and sectors continued to see increases in demand.
On the negative side, there is little doubt that costs are rising with significant staff shortages in many areas causing a sharp rise in employment costs, whilst supply chains are being seriously stretched as economies recover. Most of the companies within the portfolio are what investors describe as ‘business to business’ service providers so should not be as impacted by these issues, although we do need to be aware that in other sectors margins are under pressure due to these cost increases.
Activity within the portfolio has been limited and involved a further reduction of the ever-successful Cerillion, which was becoming too large a proportion of the fund, and an outright sale of Gooch and Housego with reinvestment into Judges Scientific. Gooch and Housego operate in some highly specialised and concentrated engineering areas and although a well-run company they were seeing demand come under pressure and we preferred the greater spread of operations at Judges Scientific with their excellent track record of consistently buying and integrating specialist companies and applying their strict management controls.
Although you will see that we provide in the performance figures a comparison with the relevant benchmark we do not aim to track this index. Our investment process is extremely disciplined and designed to reduce risk in what is a high-risk area of the market. The benchmark index is distorted by a small number of very large companies that do not fit into our investment process and as such we must point out that at times we will see performance that is significantly different to the index.
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