IFSL RC Brown UK Primary Opportunities | Fund Update | February 2023
February: FTSE hits 8000 (but fails to hold the level)
The FTSE 100 hit record highs in February surpassing the 8000 level for the first time before coming off its highs. Whilst the FTSE 100, with its significant exposure to oil & gas and mining companies, may have hit new highs, the more UK focused FTSE 250 and small caps remain significantly below their all-time highs. Economic data has broadly been positive in the month as employment remains at historically high levels whilst inflation (though still above 10% in the UK) fell by more than expected. The Bank of England increased rates to 4% and there is belief that rates are close to topping out. The outlook for growth and inflation has improved since the end of last year, in part aided by falling gas prices. Hopes of a soft economic landing in the US and the UK avoiding a recession altogether have risen and are providing real grounds for optimism for investors.
Whilst the number of profit warnings continue to demonstrate the difficult economic environment, expectations are modest and where companies meet or beat expectations, this is being rewarded with share price gains – a bullish sign in our view. Takeover activity continues to be a feature of the UK market – highlighting the lowly valuations. Kape Technologies, Hyve and Wood Group have all received take over approaches. Vodafone shares reacted positively to rival Liberty Global acquiring a stake.
We are starting to see a resurgence in the level of equity fund raisings following a quiet year in 2022 – unsurprising given the uncertain political situation at home and abroad. Diversified Energy, 3i Infrastructure and Sigmaroc all raised money and were added to the portfolio.
In February the IFSL RC Brown UK Primary Opportunities fund returned 1.2% compared with 1.5% for the FTSE All Share and 1.6% for the IA UK All Companies sector.
***Stock to watch***
Kape Technologies
Internet & digital privacy company Kape Technologies has received a takeover offer from its largest shareholder, Teddy Sagi. The $3.44 offer (around £2.90) is deemed to be undervaluing the company by the independent directors. Sagi holds 54% of the company and requires 75% to take the company private. We intend to vote against the current offer.
Purchases
Diversified Energy
Diversified Energy owns and operates natural gas and oil wells in the Appalachian Basin in the US. We acquired the shares at a discount to the previous night’s close as part of a $163m equity raise to fund the purchase of gas assets in Texas and Louisiana. A constituent of the FTSE 250, we view the cash flows of the business and 13% dividend yield as highly attractive.
3i Infrastructure
3i Infrastructure is an investment trust focused on infrastructure assets in the UK and Europe. These range from data communications providers to energy waste plants. We acquired the shares as part of a £100m placing, allowing the company to reduce its revolving debt facility and allow capital for further growth opportunities. It is a constituent of the FTSE 250.
Sigmaroc
Sigmaroc is a construction and materials business owning quarry assets in the UK and Europe. We acquired the shares at a discount as part of an equity raise to fund the acquisition of ten assets and provide capital for organic growth opportunities. With assets prices at subdued levels, Sigmaroc has been able to buy assets at cheaper prices than in previous years and the deals are earnings enhancing from acquisition.
Sales
The small remaining holding in building materials company Lords Group was sold following a positive update. FTSE 100 mega caps Diageo and British American Tobacco were both trimmed on relative strength as we look to lighten our weightings to some of our more defensive holdings.
Cumulative Performance (Total Return %) – February 2023
| Fund/Benchmark Name | 3M to 28/02/2023 | 6M to 28/02/2023 | Year to 28/02/2023 | 3 Years to 28/02/2023 | 5 years to 28/02/2023 | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 3.1 | 3.3 | -5.8 | 13.4 | 15.7 | 451.0 |
| Quartile Ranking/IA UK All Companies | 4 | 4 | 4 | 3 | 3 | 2 |
| IA UK All Companies | 5.0 | 8.2 | 3.2 | 20.4 | 20.0 | 315.2 |
| FTSE All Share | 4.6 | 8.7 | 7.3 | 28.9 | 29.2 | 353.9 |
Source: FE: 28/02/2023
Discrete Annual Performance (Total Return %) – February 2023
| Fund/Benchmark Name | Year to 28/02/2023 | Year to 28/02/2022 | Year to 28/02/2021 | Year to 29/02/2020 | Year to 28/02/2019 |
| IFSL RC Brown UK Primary Opportunities P Acc | -5.8 | 5.4 | 14.3 | 1.9 | 0.0 |
| Quartile Ranking/IA UK All Companies | 4 | 3 | 1 | 2 | 3 |
| IA UK All Companies | 3.2 | 7.6 | 8.5 | 1.0 | -1.3 |
| FTSE All Share | 7.3 | 16.0 | 3.5 | -1.4 | 1.7 |
Source: FE: 28/02/2023
Please be advised that the past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested.
