Factsheet Commentary: September 2021

How times change. In mid-2020, the world was on the brink of collapse – demand had disappeared and many companies were thinking “Will we survive until Christmas?” Fast forward 15 months and we see a complete U turn – demand has ballooned and supply is struggling to keep up. 

It is abnormal to witness second hand cars appreciating in price and long queues at Britain’s petrol forecourts. Whether it is a shortage of new cars due to disrupted chip supply chains, or a lack of coal, or any one of a number of other current bottlenecks, inflation is being reflected in company performance:

▪ Although Computacenter remains confident that it will beat a solid H2 20 when it reports next, it highlighted supply chain headwinds. 
▪ Vietnam is under lockdown, so HeiQ’s customers are compelled to shift production to Mexico. This forced HeiQ to move its deliveries 16,000 miles. This not only takes time, but it also costs money, with freight rates having skyrocketed 500% this year. Higher costs and delayed sales translate into lower profits. 
▪ In their AGM statement, In the Style confirmed improved website traffic and average order value but also severe disruption in their supply chain leading to higher costs. We revisited the business case and sold out of our holding.

The lockdown may be in Vietnam but the pain was felt in London – our NAV was down 7% for the month. It hurts. 

Our companies are run by solid teams and we are sure they will deliver – but some will need more time than others. Similarly, as investors we have learnt that successful equity investing requires discipline but also patience and mental fortitude. It is importantly to be open minded and make amends when required. 

Equities have proven to be the best asset class over the long term – but we never get this for free. If we want those higher returns, we need to embrace price volatility. It is painful, of course it is. But we need to remind ourselves: ships are safest in the harbour but that is not where they are supposed to be. Good businesses bounce back and when they do, stock prices bounce back too.

Sterling Investments Management Ltd
Lynwood House 2-4 Crofton Road,
Orpington, England, BR6 8QE

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