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February

Strong performance across most of our geographic universe has once again been offset by the strength of Sterling, which continued to rise against most developed market currencies. There were strong performances in local currency terms from a number of holdings.

Hudson’s Bay in Canada jumped 20% over the month, as it announced two transactions as part of their strategy to unlock value from their extensive property assets. This comes on top of a rise in price in November 2014 on the news of a revaluation of their 5th Avenue, New York store. Initiatives by management to narrow the gap at which the company trades relative to its NAV have led to a 57% increase in share price thus far this financial year.

Investor AB reached new highs as it rose 9% during the month as it continues to outperform markets. The company also announced a 12.5% increase in its dividend. SVG Capital was also a strong performer with its shares up 13.1% over the month. A further sale of Permira’s stake in Hugo Boss added to the company’s already substantial cash balance, while the NAV was driven higher by a 13% rise in the share price of largest holding Freescale Semiconductor. Shortly after the month-end, the acquisition of Freescale by NXP Semiconductors was announced in a part-cash part-shares deal which saw a further gain of 12% in Freescale’s share price.

The biggest detractor from performance was Hitachi, although part of the overall loss was offset by the currency hedge on the Yen, which weakened against Sterling by 4.8% over the month. Investors reacted negatively to Hitachi’s Q3 results as earnings fell short of plan in one of its key divisions, which caused some concern over the ability of management to continue to deliver on its growth plans. It is trading on a discount to its sum of the parts of c. 25% and on a low earnings multiple of c. 12x and we think the shares should recover.

The other detractor over the month was Jardine Matheson where a small fall in share price of 0.7% was exacerbated by the 2.8% fall in the US dollar against Sterling.

It was an active month for us in terms of purchases and sales, as four new holdings were initiated and three companies were sold entirely.

On the buy side we bought three companies in the energy and mining sector including a stake in in Blackrock World Mining Trust. This is an area of the market to which we have had very little exposure to however, after very sharp declines there are signs that value is emerging. It is possible that this will continue to be a volatile sector however, value often emerges in areas of the market that are the least-favoured. Many of the reasons for continued falls in commodity prices are well known and may well be discounted by the market.

We also invested in Sacyr, a Spanish holding company that has exposure to Spanish real estate via Testa – a company that is likely to come to the market via an IPO in the next few months, and also to Repsol, the oil company via a 9% stake in its equity. We acquired our holding on a discount of c. 25%.

Whilst mining and energy companies have been unpopular with the market and arguably have valuations to match, one area of our universe where it is hard to make the value case is German residential property, where much of the sector is trading at substantial premia to NAV. We completed the sale of our small holding in Buwog during the month, at a premium to NAV, and Westgrund received a bid from its larger peer, Adler Real Estate.

The largest sale was of Tui, the German holding company that recently merged with Tui Travel Plc. We bought into the company in June 2014 – before the merger was announced – on a discount of 35%, and sold out at a discount of 10% after the share price went up by 29% in Euro terms.

Cash at month end was 4.4% and the weighted average discount on the portfolio was 24.4%.

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