IFSL RC Brown UK Primary Opportunities | Fund Update | May 2024
May: UK equities make further progress
Last month we asked if this was a turning point for UK equities given the outperformance in April. May saw further gains, albeit the UK market was not the stand out performer as it was in the previous month. Confirmation of a return to economic growth as Q1 GDP came in at 0.6%, higher than expected, and inflation continuing to fall towards the Bank of England’s 2% target, adding to market buoyancy. It is re-assuring to see the FTSE 100 maintain its level above the psychological 8000 mark. Nevertheless, there remains a growing sense of optimism surrounding the UK market which has seen a significant pick up in fund raising activity.
National Grid announced a £7bn rights issue, the largest fund raise in almost a decade in the UK market, in order to fund the development of their electricity grid networks in the UK and US. As shareholders, we expect to take up our rights. Great Portland Estates, a FTSE 250 property company, also announced a £350m rights issue.
BHP Billiton tabled a third all share offer for FTSE 100 constituent Anglo American which was also rejected. The structure of the deal proved a major sticking point and so Anglo remains independent (for now at least) with management focused on improving its operating performance with a particular focus on copper, iron ore and fertiliser and intends to sell its De Beers diamond business.
Last month we wrote about the de-equitisation phenomenon in equity markets, which are not solely a UK phenomenon, and welcome upcoming reforms to increase the attractiveness of listing in London. Whilst M&A activity has continued apace this month, with the likes of Hargreaves Lansdown and XP Power rejecting take over approaches – we have reviewed four companies that have stated their intention to IPO. We will have further news next month about those we have invested in. It is encouraging to see good quality companies looking to list in London, and we are aware of a number of other companies that are expected to follow suit. In normal circumstances, we would expect the calling of a general election, and the resulting uncertainty, to result in a lull in equity fund raisings. However, given the highly anticipated result of a centrist Labour majority government that aims to increase business confidence, which has been a headwind for the UK since the 2016 Brexit referendum, the equity market is sanguine about the likely future government.
We added AJ Bell and Associated British Foods to the portfolio, taking advantage of secondary placings at a discount for both stocks.
In May, the IFSL RC Brown UK Primary Opportunities fund returned 1.7% compared with 2.4% for the FTSE All Share and 3.2% for the IA UK All Companies sector, all on a total return basis.
Purchases
AJ Bell is one of the UK’s largest investment platforms allowing retail investors and financial advisers access to a broad range of listed equities, funds and fixed interest instruments. Following a strong set of interim results, we acquired the shares as part of a placing by the founder at a 7% discount to the closing share price at the time. The shares are a constituent of the FTSE 250.
Associated British Foods (ABF) is a diversified conglomerate group with a range of food and ingredients’ businesses, such as ABF Sugar, a producer of sugar and sugar derived products operating in nine countries. It owns a number of leading food brands such as Kingsmill bread and Jordans cereals. It also owns Primark, a leading, value for money, high street retail brand. We acquired the shares at a discount as part of a placing by the founding family that remains a majority shareholder in the company. We consider this FTSE 100 constituent to be attractively valued and provide useful diversity to the portfolio.
Sales
We continued to modestly trim our overweight real estate exposure by reducing the holdings in Rightmove, Londonmetric and Big Yellow Group on strength.
Cumulative Performance (Total Return %) – To 31 May 2024
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 8.0 | 10.5 | 10.1 | -3.7 | 18.8 | 71.3 | 482.9 |
| Quartile Ranking IA UK All Companies | 3 | 4 | 4 | 4 | 4 | 2 | 2 |
| IA UK All Companies | 9.1 | 14.0 | 13.4 | 10.5 | 28.9 | 65.6 | 353.8 |
| FTSE All Share | 9.9 | 13.6 | 15.4 | 25.5 | 37.3 | 77.6 | 401.8 |
Source: FE: 31/05/2024
Discrete Annual Performance (Total Return %) – 31 May 2024
| Fund/Benchmark Name | Year to 31/05/2024 | Year to 31/05/2023 | Year to 31/05/2022 | Year to 31/05/2021 | Year to 31/05/2020 |
| IFSL RC Brown UK Primary Opportunities P Acc | 10.1 | -7.9 | -5.0 | 32.3 | -6.8.5 |
| Quartile Ranking IA UK All Companies | 4 | 4 | 3 | 2 | 2 |
| IA UK All Companies | 13.4 | -1.1 | -1.5 | 28.6 | -9.3 |
| FTSE All Share | 15.4 | 0.4 | 8.3 | 23.1 | -11.2 |
Source: FE: 31/05/2024
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.
