November was a rollercoaster month for markets, which were up nicely through the first half of the month, continuing from a strong September. News around increasing COVID infections in Austria and many other countries in Europe started to drag on markets as the month wore on. The defining moment of November came when news emerged on the 25th of a potentially very transmissible new variant of Covid being discovered by South African scientists. This, coupled with a very thin volume trading day on Friday 26th November in the US (a shortened trading day in the US for the Thanksgiving holidays) led to a vicious sell off. While the initial news out of South Africa was that the new variant appeared to be causing mild symptoms in those affected with it, markets took a “sell now and ask questions later” approach, especially when governments started closing borders and banning flights to and from the Southern African region. The selloff was particularly acute for travel-related stocks, which reversed much of the gains from the past months.
This is very frustrating for the fund as we have an overweight position in the Consumer Discretionary Sector. This eclectic sector has some very good companies it, but as a sector, would not be expected to perform well in the middle of a pandemic. This is precisely what creates the investment opportunities we look for – exceptional companies temporarily out of favour. Our biggest position here is Intercontinental Hotels Group, which was down 13% in the month, though it has more than doubled since the lows of last year. The company is one of the highest quality companies listed in the UK and we believe it is trading at a deep discount to its intrinsic value. In the short term, the market is not prepared to look through the pandemic to a future when COVID is well managed and endemic (we are very confident this day will come). Our view remains that this is an exceptional company available at an exceptional price.
Our biggest stock specific relative performance detractors in the month were Flutter Entertainment, Intercontinental Hotels and Whitbread. The biggest stock specific contributors to relative performance were Rightmove, Sage and Becton Dickinson. Other big news in the month was FED Chairman Powell admitting that inflation was not transitory, and in effect confirming our previously voiced thoughts that the FED and other central banks have not been taking the inflation threat seriously enough. Powell flagged potential changes in tapering which would in effect cause a tightening of global liquidity faster than the market expected. This came too late in the month to impact on November returns, but we believe it marks a major shift in policy.