November 2020 Fund Update | A month of positive catalysts | 2nd Best month on record for the Fund & UK equities

A month that simply underlined the power of equities and why regardless of how bad the outlook may be, it is important to remain invested as the outlook can change at short notice, particularly given the unprecedented circumstances the world is experiencing.  Those investors waiting for brighter news-flow missed the most powerful early stages of a rally and invariably are left playing catch-up.

Looking back at the Fund’s monthly performance history, only April 2009 saw a larger gain as it rose 21% following the lows hit due to the great financial crash. The Fund is rather less high octane than those days with a broader portfolio of around 80 stocks and an increased FTSE 100 weighting, which accounts for approximately 50% of the Fund. Nevertheless, it is pleasing to out-perform a rapidly rising market.

We had ended October touching six month lows as a further round of lockdowns were announced. The first positive catalyst, despite a close run election, was a Democratic Joe Biden victory. Whilst we felt a decisive election outcome either way was likely to be taken positively, the view prevailed that a more conciliatory US President with a global outlook is positive for the world and its economies. China and the US will no doubt continue to clash over trade, but one feels the tone and rhetoric will be rather softer.

The second catalyst and a game changer for the economic outlook for 2021 and beyond was the announcement of the success of the Pfizer/BioNTech vaccine. Economically sensitive stocks and those companies most affected by lockdowns surged. Further positive vaccine news-flow from Moderna and AstraZeneca spurred the market higher still. Whilst it will take some time for vaccines to be rolled out to whole populations, the most at risk categories will soon be offered a vaccine and hopes of some normality returning by Easter appear achievable. Like other investors, we had no great insight into this excellent vaccine news. We expected some news by the year-end and we could see that the testing programme was being ramped-up to allow the economy to open after this winter.

Earlier this year we had taken part in a number of fund raisings, by companies who had been adversely impacted by the pandemic and were strengthening their balance sheets as protection against further lockdowns. The likes of Compass, JD Wetherspoons, EasyJet, SSP and Hollywood Bowl were added to the portfolio. All of which we considered to be strong companies, that may continue to be under pressure in the short term, but as market leaders and survivors they would benefit and grow market share as the pandemic subsided. All have surged more than 30%, although they still trade substantially below pre-pandemic levels. We intend to continue holding these into the economic recovery.

The third catalyst is the ongoing belief that a trade deal with the EU will be agreed. Sterling has continued to strengthen. Whilst a deal remains our base case, we are not of the view that it is a foregone conclusion. Either way, with time running out, something has to give.

Forecasts that UK GDP is expected to decline by 11.3% in 2020, the worst for 300 years, was overshadowed by the positive vaccine news. Nevertheless, it remains a long road to recovery. Stock markets are forward looking indicators – they know that 2020 and 2021 will be dreadful years’ earnings wise for many companies, yet the outer years, 2022 onwards, may start to resemble pre-Covid levels. Of course, it will not be quite that simple as Covid will undoubtedly have altered some consumer habits for good, but we are of the view that people will want to again travel for business and leisure, shop in store and work in an office – at least part of the time.

US markets reached new highs and the significant discount of the UK market relative to other major markets was again highlighted as RSA, Urban & Civic and Codemasters received takeover approaches.

Accrol and Ricardo were added to the portfolio, whilst we increased our holding in Hargreaves Lansdown.

In November, the IFSL RC Brown UK Primary Opportunities fund returned 15.1% compared with 12.7% for the FTSE All Share and 14.2% for the IA UK All Companies sector.

Purchases

Accrol

Accrol is a tissue paper manufacturer supplying products to the supermarkets and discount retailers. We acquired the shares as part of a £40m placing to acquire a competitor which will make Accrol the UK’s second largest tissue producer. We expect the shares to respond favourably to this earnings enhancing acquisition.

Ricardo

Ricardo is an engineering and environmental consultancy business servicing clients in industries including energy, transport and defence. The shares were acquired as part of a placing to strengthen the balance sheet and provide capital for the pending economic recovery. We anticipate Ricardo being a beneficiary from the move to a sustainable zero carbon future as it works with sectors who are mandated to reduce carbon emissions.

Hargreaves Lansdown

We modestly added to our holding in this market leading financial services company as part of a sell-down by founder Stephen Lansdown. The shares were sold at a 5% discount to the previous night’s price.

Sales

Greencoat UK Wind

We had purchased shares in this renewables infrastructure company to provide income and stability in difficult market conditions. With a brighter economic outlook, we were content to sell for modest profits and use the proceeds for new primary opportunities where we see greater medium and long term upside.

Argentex

Following an August profit warning by this foreign currency operator, the shares recovered some of their recent losses on results, allowing us to take profits and use the proceeds to invest in upcoming primary opportunities.

FRP Advisory

We took profits in this insolvency and restructuring advisory firm. The shares have performed strongly since IPO as the grim economic outlook has resulted in more demand for their services. However, with the outlook now looking rather less dire, we believe the valuation is up with events and believe better value lies elsewhere.

Sumo Digital

We took profits in this computer games developer which have proved a beneficiary of lockdown. We continue to hold Team17 in the sector.

Breedon

We took profits in this building aggregates company on rising markets and positive news-flow. We continue to have good exposure to the construction and house building sectors.

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.

Cumulative Performance (Total Return %) – November 2020

Fund/Benchmark Name	3M to 30/11/2020	6M to 30/11/2020	Year to 30/11/2020	3 Years to 30/11/2020	5 years to 30/11/2020	Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunities P Acc	7.6	8.3	-4.3	4.3	38.0	395.5
Quartile Ranking IA UK All Companies	2	3	2	2	1	1
IA UK All Companies	8.4	9.9	-6.6	0.4	22.9	251.0
FTSE All Share	6.6	6.9	-10.3	-1.9	22.1	247.0

Source: FE 30/11/2020

Discrete Annual Performance (Total Return %) – November 2020

Fund/Benchmark Name	Year to 30/11/2020	Year to 30/11/2019	Year to 30/11/2018	Year to 30/11/2017	Year to 30/11/2016
IFSL RC Brown UK Primary Opportunities P Acc	-4.3	9.4	-0.4	21.5	8.9
Quartile Ranking IA UK All Companies	2	4	1	1	2
IA UK All Companies	-6.6	12.3	-4.2	15.1	6.3
FTSE All Share	-10.3	11.0	-1.5	13.4	9.8

Source: FE 30/11/2020

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. R.C. Brown and Marlborough are authorised and regulated by the Financial Conduct Authority. Marlborough Fund Manager are the ACD. The Key Investor Information Document and the Full Prospectus can be obtained via www.marlboroughfunds.com or by request at: info@rcbpo.co.uk