The portfolio has recovered materially from the risk-off panic, induced by Trump in March and there have been a number of positive stock specific developments which powered fund performance. Market prices generally recovered, as expectations rose of a short period of Middle East disruption and were rewarded with an ‘off-ramp’ for both Iran and Trump emerging in late June, via a ‘Memorandum of Understanding’ between the two. This suggests inflationary impacts will be contained (the oil price collapsing in recent weeks) enabling, at least in the UK, interest rates to start falling again, a key driver of small company share performance. Of note, though, the ECB raised interest rates and new Fed Chair Kevin Warsh has started out with more ‘hawkish’ commentary. On the domestic front, the economy is spluttering, housing market ‘flying on vapour’ and thus the backdrop for cuts much more likely in our opinion. It pains us to acknowledge yet another change in Prime Minister. Really?! The last experiment of appointing a populist Metropolitan mayor in the biggest role went well. High uncertainty levels persist. “All hail Elon” was the headline for Q2 2026. The American dream is alive and well as trillionaires are made based on plans to mine asteroids, colonize Mars and create a new ‘lunar’ economy. You’ve got to hand it to the man, anyone can be a visionary, but capturing the world’s attention and raising billions to finance it, is rarely achieved. Deft ‘technical’ index negotiations resulted in the massive US passive asset management industry driving a successful IPO, at c.100x sales, of loss-making SpaceX and its unconventional corporate governance, business plan, mix of assets and key man risk. The hype powered mass market engagement with all things ‘space’ and Rockwood benefitted from a sharply higher move in Filtronic. A tremendous business, with a bright future but it now has a very high valuation and high expectations for transformative growth. We will not succumb to ‘Ownership bias’ or ‘Endowment effect’, ‘Over confidence’ or ‘Self attribution’ biases and may be accused of the ‘Disposition effect’ but we decided to fully realise our investment. Filtronic has thus delivered a 220.75% IRR since our purchase in May 2023 (3 year holding period), and generated a £21.1m profit. There isn’t a better example of the possible opportunities for investors hiding in the ignored and overlooked arena of UK small companies. We wish the company and all its stakeholders the very best of luck for the future and thank all involved in taking the business and shares to where they are today. During the quarter we received two successful takeover offers, both from German trade buyers. The premium for Treatt was 48%, we will realise a 46.5% IRR. Secondly, Van Elle, where the premium was 58.5%, realising an IRR of 12.4%. We attended two ‘capital market events’ at James Fisher & Sons and Eagle Eye Solutions. We expect significant new defence contracts in the former to drive the shares much higher in the coming quarters. At the latter, contract win momentum is already underway and the shares rose 46.7%. The penny is finally dropping that Kooth is highly likely to have an on-going long term relationship with the State of California, rendering the current share valuation ludicrous. It rose 49% in the quarter. It was pleasing to see strong performances from Flowtech Fluidpower (+38%) and Pennant International (+38.9%) where at both the fruits of previous restructurings and efforts are starting to emerge. The only notable weak holding during Q2 was Capital Limited, our ‘pick ‘n’ shovels’ mining services investment, where concerns over delays at a key client project weighed on sentiment, (-11.4%). We expect material growth from the company in the coming years.
