Alma Oceanwood Opportunities

Fund

Relative calmness returned to the markets in April after the weeks before when bank runs and failures dominated the news. The Euro Stoxx 50 Total Return index (“SX5T”) returned +1.64 as markets gently recovered, and again, underneath the surface, factors continued to dominate as we saw market participants refocusing their attention on the path of interest rates, driven by a potential slowing of inflation.

European earnings also kicked off towards the end of the month and these have generally been coming in better than expected due to increased pricing and conversely good cost control, resulting in better margins. The margin beats are quite widespread as the percentage of companies exceeding expectations reached 72%, with three sectors even above 85%. With the market rallying as it has done year-to-date, we believe investors’ expectations had somewhat already priced this in, leading to the price reaction function being muted for positive news and poor numbers being severely hit. Moreover, those that gave weak or muted guidance were further punished. In addition to this, China’s re-opening had a positive readthrough to luxury goods companies which saw a reacceleration in sales growth and Banks, which had been the source of the problems last month, reported solid deposit flow data and subdued loan loss provisions. From a valuation perspective, the Eurozone trades on 12.6x 12m Fwd PE which is 30% below the 2021 highs. For comparison the US trades on 18.4x 12m Fwd PE, only 20% below 2021 highs.

The Oceanwood UCITS Strategy finished the month solidly, +2.34% net, bringing YTD net returns to -3.18%. The main contributors were longs in Dowlais Group (+1.35%), Prudential (+0.76%), RWE (+0.71%), Brenntag (+0.49%) and a short in Alstom (+0.41%) The detractors were a long in Melrose (-0.67%), long Sartorius (-0.60%), and shorts in Kleppiere (-0.46%), Fresenius (-0.38%) and Atos (-0.31%). Overall this month, the longs contributed +439bps whilst the shorts detracted -187bps overall. Year-to-date the longs have contributed +622bps whilst the shorts have detracted -902bps overall.

In spite of all the uncertainty, we have seen a general pickup in activity across a number of events including the breakup of Melrose, M&A with the likes of Dechra Pharma and Network International, as well as recaps such as TUI AG. We believe that this is a trend that is set to continue and the calendar for further events is looking healthy. At the same time, as we have discussed previously, we have some concerns with market levels and the general outlook so are keeping our net exposure limited.