‘Liberation Day’ proved to be the main event in what was a volatile month. Initial tariff announcements by the US administration were harsher than expected and led to declines in the shares of smaller companies, particularly in North America and Asia ex-Japan. Other regions such as the UK, Europe and Japan fared better. Concerns mounted about the sustainability of economic growth both in the US and other regions. Economic data was mixed, with indicators in the UK, Japan and emerging markets typically surpassing expectations, while those in North America and Europe were weaker. The leading sectors were utilities, consumer staples and consumer discretionary. The laggards were energy, healthcare and basic materials. This reflected increased risk aversion among market participants. Having outperformed for several years, US assets fell out of favour. Unusually this included the traditional safe haven of US Treasuries, which underperformed other major developed government bond markets. The dollar, and bond yields outside of the US, fell sharply over the month. Gold continued its recent winning streak. Later in the month, markets partially recovered as
the US administration backtracked on some of its previous rhetoric and as investors focussed on quarterly corporate earnings releases.
The Company’s net asset value (NAV) fell 1.4% in April, with the discount narrowing slightly. The movement in the Company’s NAV and share price were ahead of the benchmark.
In North America, our portfolio underperformed the local index. Encompass Health, an operator of inpatient rehabilitation facilities, delivered good results with strong organic volume growth. Precious metals streaming company Wheaton Precious Metals rose with the gold price. Construction materials company Martin Marietta Materials pre-announced better-than-expected earnings, with healthy price increases and lower production costs. On the negative side, insurance broker Brown and Brown lagged as softer catastrophe insurance rates led to a slowdown in organic revenue growth. Payments-processing business WEX and non-operated oil and gas company Vitesse Energy fell with the oil price.
The UK portfolio was slightly behind its benchmark in April. Package holiday operator Jet2 started a share buyback programme. After a period of technical selling pressure, shares of confectionary and food distributor KitWave Group recovered. Specialist lender Paragon Banking Group rose on optimism of a pickup in buy-to-let lending volumes. Private equity firm Bridgepoint Group suffered from wider concerns over the impact of an economic slowdown on portfolio realisations. A hiatus in contract wins and higher costs led to a profit warning from specialty ingredients company Treatt. Heat treatment specialist Bodycote was seen as a potential casualty of the tariffs that were announced during the month.
The European portfolio was ahead of its benchmark. RENK Group, an Austrian manufacturer of drive systems for military vehicles, continued to benefit from increasing investor interest in European defence stocks. Shares of events and ticketing business CTS Eventim bounced after a period of weakness. French commercial services company Elis benefitted from a rotation by investors into domestically-focussed services companies with less exposure to tariffs. Amid the weakness in the equity markets, investors grew concerned about the prospects for Norwegian insurer Storebrand’s asset management business. Leisure products business Thule reported weak results from its US business. The CEO of chemicals distributor IMCD unexpectedly left the company.
Returns in Japan were well ahead of the MSCI Japan Small Cap index. Positive contributors included apparel retailer PAL Group, whose earnings exceeded expectations because of a healthier profit margin and favourable exchange-rate movements. Earnings forecasts for television-broadcaster Nippon Television rose because of stronger advertising revenue. Homebuilder Open House announced management changes and new policies on shareholder returns. On the negative side, technology distributor Daiwabo and toy and game manufacturer Tomy underperformed on tariff-related concerns. The profit outlook for property developer Nomura Real Estate worsened because of project losses.
In totality, the Rest of World fund holdings outperformed the MSCI Asia ex-Japan small cap index during the month. The Scottish Oriental Smaller Companies and Utilico Emerging Markets investment trusts delivered good relative performance. The Pinebridge Asia ex Japan Smaller Companies and Schroders Global Emerging Markets Smaller Companies funds
were both behind the local benchmark.
Investment risks
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. The mention of specific shares or bonds should not be taken as a recommendation to deal. Gearing is used for investment purposes to obtain, increase or reduce exposure to an asset, index or investment. The use of gearing can enhance returns to investors in a rising market, but if the market falls the losses may be greater.
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