One of which is online investment platform AJ Bell, which the managers added to following is 30% share price decline in the first half of 2022.
“The spike in energy prices and the subsequent effect on company profitability and economic growth is likely to create ongoing headwinds across the market,” portfolio managers Jonathan Brown and Robin West wrote in the trust’s half-year report.
“Investors often react to ‘price in’ these factors well ahead of time, and this has been the case over the last six months, resulting in many businesses now trading at historically low valuations.”
Rather than just running with the herd, Brown and West noted that “it is often important to take a contrarian view”, which could involve selling stocks when there are signs of a bubble forming, but also “adding to holdings when we believe they are oversold”.
Touching on AJ Bell, the pair described it as a “one of the UK’s leading players” in its field and said it had an “enviable long-term growth record and still has plenty of scope for market share gains”.
They said they still “liked” the financial characteristics of the business, despite the steep share price decline this year, and said this valuation decrease “offered a good opportunity to rebuild the holding “.
Beyond AJ Bell, the managers also added XP Power, Auction Technology and GBG, after the share prices fell by around 40%, 50% and 50%, respectively. The trust has also maintained holdings in some consumer related stocks.
“While these businesses will be impacted by a more difficult backdrop in the coming months, they are trading at very low valuations and could rally very significantly in the event of more positive news around energy prices,” the managers said.
During the difficult period for markets, the trust saw its net asset value decline by 11.3% in the six months to June 2022, according to its half-year report, while the Numis Smaller Companies + AIM (excluding Investment Companies) index fell by 12%.
The return to shareholders declined by 14.8% over the period and the discount widened from 12.7% to 16.5%.
Serco, Energean, 4imprint and Chemring were the portfolio’s best performing stocks over the period, while Knights, Essentra and Inspecs were the main detractors from performance. Future, the online media and magazines business, fell by 42%, an opportunity the managers used to add to its holding.
“The recent sell-off is allowing us to add to holdings in businesses that have the potential to be substantially more valuable in the future,” the managers said.
“Whilst no portfolio will be immune from a coming downturn, we believe that through careful stock selection we can position the company to benefit when the recovery emerges.”
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