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Shires Smaller Companies plc

 

Objective

The objective of the Company is to provide a high and growing dividend and capital growth from an investment in a portfolio invested principally in the ordinary shares of smaller UK companies and UK fixed income securities.

Manager's Monthly Report

June 2009


May was the third consecutive positive month for UK equities this year. The FTSE All-Share Index appreciated by 4.2% in total return terms and while smaller companies shared the positive trend, the FTSE SmallCap Index (ex Investment Companies) had a more muted total return of 1.8%. Strength in key commodities, including oil and copper, was reflected in an outperformance by smaller metals and mining companies. The continued recovery is being driven by the perception that the macroeconomic data is stabilising and a major depression has been avoided. Recent statistics show that the rate of economic decline is decelerating rather than stabilising. With stock levels reduced sharply last year, the second half of 2009 should benefit from a re-building of inventory levels. The May CBI output expectations survey also supported the notion that conditions are bottoming out while other areas such as retail sales and the housing market are showing signs of improvement. However, it should be remembered that the economy is still in recession and it is unclear both when the economy will recover and how strong the recovery will be. During the month, we reduced the holding in James Fisher and Sons and topped up the holdings in Greggs, Hornby, Morgan Sindall and RM. In the fixed interest portfolio, the holding of Marks & Spencer 5.875% bonds was switched into Anglian Water 6.75%. Despite the recent rally, smaller companies continue to trade at a discount to their larger peers. There is the potential for equities to re-rate further as they are still on historically low valuations. However, it would seem likely that at some point investors will want to see tangible signs that we have hit the trough of this economic cycle in order to have confidence about the recovery. We remain committed to focussing on good quality businesses with strong balance sheets and transparent earnings and cash flow.