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Montanaro UK Smaller Companies suffers from ‘most volatile two-year period’ ever experienced by manager

Montanaro UK Smaller Companies suffers from ‘most volatile two-year period’ ever experienced by manager – Montanaro UK Smaller Companies (MTU) has released its final results for the year to 31 March, during which time its NAV declined by 5% while its share price fell by 10%. In comparison, the Numis Smaller Companies (excluding investment companies) Index fell by just over 1% (all figures on a total return basis).

The largest positive contributors relative to the benchmark over the period were self-storage provider, Big Yellow; online market research company, YouGov and software solutions business, Tracsis.

Meanwhile, the biggest detractors were Frontier Developments, a developer of software games; military grade helmet producer, Avon Protection and Tristel

Manager, Charles Montanaro, said it has been the ‘most volatile two-year period that I can recall in a career in investing spanning more than four decades’. 

Statement from the chair:

As the world appears to be finally emerging from two exhausting years of a pandemic and lockdowns, we find ourselves wrestling with extraordinary macroeconomic and geopolitical uncertainty once again.

Fears of significant price and wage increases have resurfaced globally, including in the UK where inflation has recently climbed to a 40-year high. The tragic war in Ukraine is further amplifying the pressure on food, commodity and energy prices. Consumers are faced with the prospect of a significant increase in the cost of living, while businesses are doing their best to manage the pressure on margins from rising input costs and supply chain challenges. For the first time in over a decade, significant monetary tightening by the world’s most important Central Banks looks likely. In equity markets, this has translated into a major rotation away from Quality and Growth companies in the first quarter of 2022 which had a negative impact on our relative performance during the past financial year.

As our shareholders know, the Montanaro team avoids trying to forecast macroeconomic developments, preferring instead to focus on the fundamentals of our investee companies most of which are Quality Growth. For example, high quality companies with pricing power are best placed to offset inflationary pressures in the coming months.

Previous periods of significant underperformance from Quality Growth companies have presented good buying opportunities for those with a long-term investment horizon. The Board is confident that Montanaro will continue to deliver the strong performance that we have enjoyed over the last 27 years.

MTU : Montanaro UK Smaller Companies suffers from ‘most volatile two-year period’ ever experienced by manager

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