IFSL RC Brown UK Primary Opportunities | Fund Update | May 2023
May: Stubbornly high inflation
May saw a significant fall in UK equities, materially underperforming other major markets such as the US, which was buoyed by its strong mega cap technology sector. The Bank of England again raised interest rates and signalled that there are more interest rate rises to come as the April inflation print came in at 8.7%, 0.5% higher than expectations. Whilst inflation is falling, aided by lower energy prices, it is proving stickier than anticipated as food and wage inflation remain high. The concern is that wage inflation becomes entrenched, particularly with a tight labour market, making it harder still to bring inflation down. The market now anticipates interest rates to peak at over 5%.
On a more positive note, the UK economy is proving more resilient than expected and has confounded expectations that it would slide into recession this year. Household spending has remained resilient aided by falling energy prices, a strong labour market and savings amassed by many households during the pandemic. Higher interest rates, whilst good for savers, will bite into household disposable income as mortgages are renewed.
May proved a relatively quiet month for primary opportunities. There was a further secondary sell down in London Stock Exchange, however given it is already one of the fund’s larger holdings, we did not add further to the position. We declined participating in the fund raisings in Asos and Superdry, both proved profitable investments a number of years ago in the fund. Neither met our quality criteria and whilst the funds raised may allow both to stage a recovery, we do not see either returning to previous glories.
We continue to assess those primary opportunities that come across our desk but acknowledge it is likely to be a relatively quiet summer for opportunities as investors take stock of current market challenges. We are aware of a pipeline of companies looking to raise capital as and when market appetite improves.
In May the IFSL RC Brown UK Primary Opportunities fund returned -3.2% compared with -4.6% for the FTSE All Share and -2.8% for the IA UK All Companies sector.
Purchases
No new holdings were added to the portfolio this month.
Sales
The holdings in consumer facing stocks JD Sports and Whitbread were trimmed on strength along with Bytes Technology, which rose over 20% in the month, buoyed by strength in Microsoft and other US technology names. We received cash for Kape Technologies following its takeover by its majority shareholder.
Cumulative Performance (Total Return %) – To 31 May 2023
| Fund/Benchmark Name | 3 Mths | 6 Mths | 1 Yr | 3 Yrs | 5 Yrs | 10 Yrs | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc |
-3.9 | -0.9 | -7.9 | 15.8 | 5.9 | 72.0 | 429.6 |
| IA UK All Companies Quartile Ranking | 3 | 4 | 4 | 4 | 3 | 2 | 2 |
| IA UK All Companies | -3.6 | 1.2 | -1.1 | 25.3 | 8.3 | 62.9 | 300.2 |
| FTSE All Share | -4.2 | 0.2 | 0.4 | 33.9 | 15.2 | 67.5 | 334.7 |
Source: FE: 31/05/2023
Disctrete Annual Performance (Total Return %) – 31 May 2023
| Fund/Benchmark Name | Year to 31/05/2023 | Year to 31/05/2022 | Year to 31/05/2021 | Year to 31/05/2020 | Year to 31/05/2019 |
| IFSL RC Brown UK Primary Opportunities P Acc |
-7.9 | -5.0 | 32.3 | -6.8 | -1.8 |
| IA UK All Companies Quartile Ranking | 4 | 3 | 2 | 2 | 2 |
| IA UK All Companies | -1.1 | -1.5 | 28.6 | -9.3 | -4.7 |
| FTSE All Share | 0.4 | 8.3 | 23.1 | -11.2 | -3.2 |
Source: FE: 31/05/2023
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.
