Interest rate and economically sensitive companies in the UK stock market received a good deal more interest from investors in December 2023 and January 2024, leading to strong returns, but February saw a pause to reassess. In the US, inflation data was stronger than expected, leading markets to believe the US Federal Reserve may not cut interest rates as soon as expected. In the UK, although inflation figures were a little weaker than expected, there was news that economic activity was also disappointing, with GDP contracting by 0.1% in December, which in turn meant that GDP was negative for the calendar quarter as a whole. Combined with the previous quarter of shrinking GDP, this confirmed that the UK was in a recession.
In a fairly stable market, with the FTSE All-Share Index increasing by just 0.2%, our net asset value performance was a little ahead. The strongest contributor to performance was our investment in CRH, which rose by just under 17% during the month in response to very strong operating results and the announcement of a large share buy-back programme. Another strong performer was Beazley, the specialist insurance company; its share rose by almost 20% as it announced a rare positive profit warning.
Among the detractors was XP Power, whose shares fell by 26%. It has been experiencing considerable uncertainty in its order book as customers’ stocks and supply chains appear to still be adjusting to current activity levels. Nonetheless, with a strengthened balance sheet, we expect the business to improve in the second half of this year.
