October, as is often the case, was a challenging month for equities. The prospect of higher US growth and concerns over government debt sent long-term US interest rates to 16-year highs. The surge in rates led to fears that the tightening in financial conditions would increase the downside risks to the economic outlook and increase the possibility of financial market breakdowns. The co-ordinated attacks launched by Hamas into Israel from the Gaza Strip negatively impacted sentiment further. With increased risk aversion, small and mid-cap stocks underperformed. The fund returned -7.1% versus the MSCI UK index that fell 4.0%.

The tragic events in the Middle East gave rise to concerns that additional countries would be drawn in, resulting in a wider regional conflict. It is difficult to see, though, how any of the regional powers would emerge from a broader conflict in a better position. Our base case therefore is that, like the war in Ukraine, it will eventually become more horrific background noise than something that is going to meaningfully impact financial markets. The outlook for inflation will remain the key determinant of equity market direction. Recent news flow has been encouraging. Inflationary pressures continue to ebb, and the Federal Reserve voted unanimously to leave rates unchanged at its latest meeting.

The economic outlook for 2024 has weakened and earnings in cyclical sectors may come under pressure, but financial markets are a discounting mechanism. Small and mid-cap stocks have been in a bear market since 2021 in anticipation of weaker economic growth. However, as investors begin to anticipate the turn in the interest rate cycle, and better economic times ahead, the outlook becomes much brighter. Cyclical stocks consistently return significantly more than defensives in the twelve months after a recession is declared.

With a material increase in risk aversion few holdings were in positive territory. Jet 2 declined in response to the prospect of higher oil prices. Concerns over the 2024 demand outlook continue to weigh on shares, but that is only one side of the equation. European capacity remains below 2019 levels, and we believe pricing will remain robust. Cyclical stocks were generally weak as concerns over the economic weighed.

Rentokil fell as growth in the group’s North America pest business slowed down and margins declined. Management attributed the weakness to consumer caution rather than an underlying problem with business. However, coming so soon after a large acquisition in the US the resilience of the business has been brought into question. We had reduced the position ahead of the update and lowered it further in response. The residual holding is currently under review. Croda also released a disappointing update. Its third quarter trading statement revealed that customers had continued to reduce their ingredient inventories in the consumer care, crop, and industrial end markets, due to a combination of destocking and a weaker demand environment. Again, we had significantly reduced the holding earlier in the month and sold the balance on the update.

Trading activity was higher than normal as we looked to reduce stock specific risk.

October, as is often the case, was a challenging month for equities. The prospect of higher US growth and concerns over government debt sent long-term US interest rates to 16-year highs. The surge in rates led to fears that the tightening in financial conditions would increase the downside risks to the economic outlook and increase the possibility of financial market breakdowns. The co-ordinated attacks launched by Hamas into Israel from the Gaza Strip negatively impacted sentiment further. With increased risk aversion, small and mid-cap stocks underperformed. The fund returned -7.1% versus the MSCI UK index that fell 4.0%.

The tragic events in the Middle East gave rise to concerns that additional countries would be drawn in, resulting in a wider regional conflict. It is difficult to see, though, how any of the regional powers would emerge from a broader conflict in a better position. Our base case therefore is that, like the war in Ukraine, it will eventually become more horrific background noise than something that is going to meaningfully impact financial markets. The outlook for inflation will remain the key determinant of equity market direction. Recent news flow has been encouraging. Inflationary pressures continue to ebb, and the Federal Reserve voted unanimously to leave rates unchanged at its latest meeting.

The economic outlook for 2024 has weakened and earnings in cyclical sectors may come under pressure, but financial markets are a discounting mechanism. Small and mid-cap stocks have been in a bear market since 2021 in anticipation of weaker economic growth. However, as investors begin to anticipate the turn in the interest rate cycle, and better economic times ahead, the outlook becomes much brighter. Cyclical stocks consistently return significantly more than defensives in the twelve months after a recession is declared.

With a material increase in risk aversion few holdings were in positive territory. Jet 2 declined in response to the prospect of higher oil prices. Concerns over the 2024 demand outlook continue to weigh on shares, but that is only one side of the equation. European capacity remains below 2019 levels, and we believe pricing will remain robust. Cyclical stocks were generally weak as concerns over the economic weighed.

Rentokil fell as growth in the group’s North America pest business slowed down and margins declined. Management attributed the weakness to consumer caution rather than an underlying problem with business. However, coming so soon after a large acquisition in the US the resilience of the business has been brought into question. We had reduced the position ahead of the update and lowered it further in response. The residual holding is currently under review. Croda also released a disappointing update. Its third quarter trading statement revealed that customers had continued to reduce their ingredient inventories in the consumer care, crop, and industrial end markets, due to a combination of destocking and a weaker demand environment. Again, we had significantly reduced the holding earlier in the month and sold the balance on the update.

Trading activity was higher than normal as we looked to reduce stock specific risk.