Cyclical Exposure Drives a Strong Recovery

Brent crude fell 20.8% in June, retracing to levels last seen before the Iran-US conflict. Combined with on-going ‘peace talks’, this eased cost-push inflation concerns and shifted market expectations away from further Base Rate rises towards a hold. As discussed in previous issues, the portfolio carries meaningful exposure to cyclical and interest rate-sensitive stocks, which proved a clear tailwind over the period. 

Financials were the standout, with Barclays, Lloyds, Standard Life and IG Group all returning more than 20%. IG Group has been a particular highlight this year: organic revenue grew 21% year-on-year and active monthly customers rose 202%, as the business continues to benefit from market volatility and an expanding product range.  

Energy Holdings: Contrasting Fortunes, Attractive Opportunities

Within energy, Harbour Energy traded poorly as its share price tracked the oil price lower, with the market largely overlooking solid underlying performance. The company reported increased production and guided to an additional $0.8bn of Free Cash Flow, prompting us to add to our position. DCC, the diversified energy sales, marketing and distribution group, delivered solid results and a positive update on the streamlining of its operations. We first bought DCC in late 2025 at a modest valuation - an opportunity also spotted by private equity firms KKR & Co and Energy Capital Partners, who subsequently bid for the company. We exited SDCL Efficiency (energy waste recovery, solar, batteries) after the company announced plans to wind down, subject to shareholder approval, having been hit by operational issues and falling revenues at its largest asset, Onyx. By contrast, Gresham House Energy Storage, the UK’s largest fund investing in utility-scale battery storage, continues to go from strength to strength despite a challenging regulatory backdrop. At its Capital Markets Seminar the company set out a credible, capital-efficient path to material NAV growth: having secured two joint venture partners, its equity capital requirement to complete the remaining portfolio fell from £300m to just £25m, implying a 56% uplift to Net Asset Value. 

Recycling Capital Into New Growth Opportunities

We took profits and exited Howdens, the trade kitchen supplier, on concerns over weaker consumer spending and the rise of competitor Wren Kitchens, which has grown from the fifth to the second-largest kitchen retailer in just a few years. The two business models differ, but there is enough overlap to risk some erosion of Howdens’ market share. We added to a new position in GB Group, a global identity intelligence business providing digital ID verification, fraud detection and location data solutions to clients across financial services, gaming, payments and the public sector. The company reported over 100 new customer wins and a return to growth in its US business.

We also initiated a position in Zigup, a UK-based integrated mobility solutions provider spanning the vehicle lifecycle, from rental and fleet management to accident management and repair. The business is growing both organically and through acquisitions, generates strong cash flow, trades on an undemanding valuation, and yields around 6.7%.

Positioning for the Next Phase of Defence Investment

Defence spending remained a hot topic, with the long-awaited defence investment plan ultimately prompting John Healey, the Secretary of State for Defence, to tender his resignation. The sector has seen a rotation away from large, established, technology-led defence companies towards niche, mission-critical players. Accordingly, we trimmed BAE Systems and initiated a position in Chemring Group, a long-established business whose roots trace back to producing signal flares in the First World War. It now makes countermeasures, energetics, sensors and, more recently, counter-drone systems for both civil and military markets. 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.