IFSL RC Brown UK Primary Opportunities | Fund Update | April 2022
April: Global growth softening
April was relatively benign until the last week of the month which saw market volatility following hawkish comments from the Federal Reserve indicating interest rates may rise faster than expected. Concerns over consumer strength grew, as higher commodity prices start to bite as a result of Russia’s invasion of Ukraine.
Whilst primary opportunity equity raisings remain relatively subdued, we are seeing an increase in opportunities and participated in two placings this month – Gore Street Energy Storage and Supermarket Income REIT. Both offer a generous dividend and stability during these challenging times. We have also initiated a position in NatWest, taking advantage of market weakness and will look to add to the holding on further market volatility.
We anticipate a growing pipeline of primary opportunities as good quality companies look to raise money for expansion purposes although we remain cognisant of the uncertainty that a war in Europe poses.
Rising interest rates, inflation and monetary tightening dictate that, regardless of the Ukraine situation, some continued caution is required. Global growth at the start of the year was forecast to be 4.1%, this has now been reduced to 3.3%. Global inflation is also running at more than 6%. Nevertheless, the UK market’s attractive valuation and dividend yield of 3% (double that of the S&P), provides ground for optimism.
In April the IFSL RC Brown UK Primary Opportunities fund returned -2.4% compared with 0.8% for the FTSE All Share and -1.2% for the IA UK All Companies sector. The sharp growth sell off in the last week of the month frustratingly dragged our portfolio down that had held up adequately for much of the month. Mid and small caps continue to lag the FTSE 100 due to their greater exposure to the consumer and limited exposure to oils and mining company which have performed strongly year to date.
Purchases
Gore Street Energy Fund
Gore was the UK’s first listed energy storage fund, investing in assets across the UK and internationally. We acquired the shares as part of a £150m equity raise to fund the development and purchase of more storage assets – notably in Germany and the US which will expand its footprint further overseas. The shares were acquired at a 5% discount to the share price albeit at a modest premium to NAV. The shares provide an attractive and growing dividend yield in excess of 4%.
Supermarket Income REIT
Supermarket Income is a real estate investment trust dedicated to investing in supermarket property, allowing supermarkets to focus on running their core businesses rather than the properties. Its tenants include all the largest UK grocers and their focus is on those properties that are used for both physical and online purchases. We acquired the shares as part of a £250m equity raise at a 4% discount to the share price. We view the secure inflation protected income as valuable offering a near 5% dividend yield. The shares are due shortly be admitted to the FTSE 250.
NatWest
One of the UK’s largest banks, formerly called Royal Bank of Scotland. We took advantage of share price weakness to take an initial position in the stock. We view UK banks as modestly valued, trading at below book value and offering a growing dividend stream. We will look to add to the holding in the event of further weakness.
Sales
The holding in property company LXI REIT was trimmed following solid performance to allow funds for the new purchases.
Cumulative Performance (Total Return %) – April 2022
| Fund/Benchmark Name | 3M to 30/04/2022 | 6M to 30/04/2022 | Year to 30/04/2022 | 3 Years to 30/04/2022 | 5 years to 30/04/2022 | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | -4.4 | -7.8 | -3.9 | 14.9 | 28.3 | 476.5 |
|
Quartile Ranking IA UK All Companies |
3 | 3 | 3 | 1 | 1 | 1 |
| IA UK All Companies | -2.4 | -4.3 | -0.1 | 11.2 | 20.8 | 304.2 |
| FTSE All Share | 1.1 | 3.2 | 8.7 | 14.1 | 26.6 | 329.8 |
Source: FE: 30/04/2022
Cont.
Discrete Annual Performance (Total Return %) – April 2022
| Fund/Benchmark Name | Year to 30/04/2022 | Year to 30/04/2021 | Year to 30/04/2020 | Year to 30/04/2019 | Year to 30/04/2018 |
| IFSL RC Brown UK Primary Opportunities P Acc | -3.9 | 36.7 | -12.5 | 3.1 | 8.3 |
|
Quartile Ranking IA UK All Companies |
3 | 1 | 2 | 2 | 2 |
| IA UK All Companies | -0.1 | 30.3 | -14.6 | 1.2 | 7.4 |
| FTSE All Share | 8.7 | 26.0 | -16.7 | 2.6 | 8.2 |
Source: FE: 30/04/2022
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.
