Primary Opportunities and Purchases
Primary Opportunities
In May, IFSL RC Brown UK Primary Opportunities (+4.7%) outperformed the UK equity market (+4.4%), a 7th consecutive month of gains for UK equities, its best run for a decade.
In what was the busiest month of the year so far for primary opportunities, we participated in placings in Tritax Big Box, 1pm, Marston’s, Eagle Eye and a rump placing in Cobham. There were secondary placings in Hastings, Gamma Communications, Gulf Marine Services and One Savings Bank. We also participated in the IPO’s of Eve Sleep and the largest IPO of the year so far, Alfa Financial Software. In order to fund these opportunities we took profits in Cello Group and top sliced our holdings in Dechra Pharmaceuticals, Convatec, United Utilities and Lloyds Bank.
Markets hit new highs as Emmanuel macron defeated Marine Le Pen in the French Presidential election, averting a risk off scenario. Oil prices were weaker on expanding US shale production despite OPEC’s decision to continuing capping production into 2018.
Markets are trading at historically high valuations which are justifiable given the earnings momentum and attractive dividend yield on offer, particularly from the UK market. However we are cognisant of the strong run in markets since last year and the stretched valuations in some parts of the markets. There remain areas of the market that continue to offer reasonable value and we have been able to participate in primary opportunities in these areas, always buying in at a discount, thus given us further downside protection in the event of a market correction. Once the UK election is over, we anticipate a busy period and are aware of a number of IPO’s in the pipeline.
Purchases
Alfa Financial Software
A market leader in the fast growing asset finance industry, providing software solutions for a broad range of banks, manufacturer financed financial arms and independents. Alfa’s software is increasingly in demand as the trend for renting rather than buying products grows and regulation becomes more onerous. It is expected to consolidate its market position in a fragmented market place. Despite the IPO being over 10x oversubscribed we were allocated a holding at IPO.
Marston’s
Operating over 1700 pubs in the UK. The Company raised £79m to fund the purchase of seven further pubs and the brewer Charles Wells, owner of brands such as Young’s, Courage and Wells. Whilst the consumer outlook remains uncertain, we believe the shares are modestly rated with an attractive dividend yield in excess of 5%.
Eve Sleep
Eve is the UK market leader in selling mattresses and bedroom ware online. By selling direct to the consumer, its premium mattresses are considerably cheaper than buying a similar quality mattress from a department store. The company is growing rapidly and aims to be the European market leader. The shares were acquired at IPO.
Sales
Cello
We exited our holding in this healthcare marketing and advisory company for a good profit following a solid trading update. Whilst the shares may continue to perform well, after a strong run we believe we had made the most of the gains and there were other opportunities for our capital.
Convatec
Remains a core holding but we used the recent strength to take some profits as the stock has re-rated since IPO last year.
Lloyds
Remains a core holding but we used recent market strength and the news that the government had sold its remaining stake, to trim our holding. It remains an attractive, dividend paying stock.
Discrete Annual Performance – May 2017
| Fund/Benchmark Name | 31/05/2012 to 31/05/2013 | 31/05/2013 to 31/05/2014 | 31/05/2014 to 31/05/2015 | 31/05/2015 to 31/05/2016 | 31/05/2016 to 31/05/2017 |
|---|---|---|---|---|---|
| IFSL RC Brown UK Primary Opportunities P Acc | 21.76 | 10.53 | 8.33 | -0.27 | 28.00 |
| IA UK All Companies | 31.04 | 11.52 | 10.32 | -5.72 | 21.59 |
| FTSE All Share | 30.11 | 8.86 | 7.47 | -6.31 | 24.52 |
Source: FE 2017
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.
