January 2010
Shires Smaller Companies ended a turbulent year outperforming the Index over December
with an NAV total return of 1.2% against the FTSE SmallCap (ex Investment Companies)
Index which recorded a total return of 0.9%. There was little in the way of stock specific news
to drive the markets through the month but there was a defensive bias to performance with
smaller companies lagging their larger peers. The worst performing asset class over the period
was Government All Stocks which fell 2.7%, highlighting fears over the winding down of
quantitative easing and the state of Government finances.
The pre-budget report offered very little in the way of anything tangible in terms of fiscal
tightening. The Chancellor stuck to targets on GDP and borrowing forecasts which still hang on
an optimistic outlook for the UK economy. The Bank of England left the base rate at 0.5% while
CPI inflation came in marginally above expectations at 1.9%. In overseas markets US economic
data remained mixed with unemployment data better than expected while GDP was revised
sharply downward. The downgrading of Greece was one of the month’s talking points as the
economy struggles under one of Europe’s largest debt burdens.
We introduced Savills in early December following a period of weakness. The real estate
consultant has seen earnings hit on the back of low transactions in commercial real estate
which was in part offset by cost cutting, and a strong performance from property management.
They have seen volumes pick up in residential, particularly in the South East, and with a net
cash balance sheet remains well placed to take advantage of an international property recovery.
We added to Umeco and Helical Bar and trimmed our position in British Polythene after a
strong bounce. We remain cautious on the outlook but where valuations look attractive we will
continue to deploy the cash from the previous month bond sales.