IFSL RC Brown UK Primary Opportunities | Fund Update | March 2023
March: This is not Global Financial Crisis 2
A month can be a long time in the investment world, and this most certainly proved the case this March. February ended with the FTSE 100 flirting with record highs and genuine belief that the UK economy was likely to avoid recession.
However, March saw three US banks collapse and Credit Suisse taken over by Swiss rival UBS to prevent what would have proved a disastrous liquidation for the European banking sector. Whilst we are cognisant of the fast-moving situation and the stress higher interest rates are having on some pockets of the financial world – we believe European banks and particularly UK banks, as a result of substantial regulation since the great financial crisis, are very well capitalised and able to withstand further financial shocks. Indeed, while the perceived weakest banks face greater scrutiny, the strongest are beneficiaries as they see the greatest deposit inflows at times of market distress. Whilst we view the current banking problems being isolated to a small number of isolated banks that service a particular sector (US technology) with inadequate risk management, and in the case of Credit Suisse, a bank that has been in decline for a number of years; these are clearly unhelpful events for sentiment and the risk is that banks may reign in lending, thus acting as a brake on growth prospects.
The US and western world are also grappling with significantly higher interest rates – The Federal Reserve and Bank of England both raised rates again. Inflation, although still high, particularly in the UK (rising to 10.4%) is expected to fall sharply during the remainder of the year with the expectation that rates are at or close to peaking. Rate cuts are only likely when central banks are confident that inflation is controlled.
Given the challenging environment, we added no new stock to the portfolio but increased our holding in London Stock Exchange which had a secondary placing. The UK market remains cheap on relative and historical standards, trading on a forward PE of 10.5x. By contrast the US trades on over 17x.
In March the IFSL RC Brown UK Primary Opportunities fund returned -3.5% compared with -2.8% for the FTSE All Share and -3.4% for the IA UK All Companies sector. Our overweight exposure to banks and other financials proved unhelpful in the month as the sector saw a sharp sell off following the US bank liquidations. We believe the UK sector is well capitalised and the recovery in share prices had already begun towards month end.
Purchases
London Stock Exchange
We added to our long-term holding as part of a $2bn placing by Blackstone and Reuters following their sale of data company Refinitiv in 2021. We had been anticipating the placing following an end of the lock up period. We view the company as a unique asset and were pleased to add to our holding at a discount to the prevailing market price.
Sales
Saietta, the electric drive train designer for electric vehicles, was sold following a further disappointing update and delays to its future revenue expectations.
Performance
Cumulative Performance (Total Return %) – March 2023
| Fund/Benchmark Name | 3M to 31/03/2023 | 6M to 31/03/2023 | Year to 31/03/2023 | 3 Years to 31/03/2023 | 5 years to 31/03/2023 | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 0.9 | 5.2 | -10.0 | 32.7 | 15.2 | 431.6 |
| Quartile Ranking IA UK All Companies | 4 | 4 | 4 | 3 | 3 | 2 |
| IA UK All Companies | 2.6 | 12.6 | -1.9 | 42.7 | 18.6 | 301.3 |
| FTSE All Share | 3.1 | 12.3 | 2.9 | 47.4 | 27.9 | 341.0 |
Source: FE: 31/03/2023
Discrete Annual Performance (Total Return %) – March 2023
| Fund/Benchmark Name | Year to 31/03/2023 | Year to 31/03/2022 | Year to 31/03/2021 | Year to 31/03/2020 | Year to 31/03/2019 |
| IFSL RC Brown UK Primary Opportunities P Acc | -10.0 | 3.7 | 42.1 | -17.8 | 5.6 |
| Quartile Ranking IA UK All Companies | 4 | 3 | 2 | 2 | 2 |
| IA UK All Companies | -1.9 | 5.4 | 38.0 | -19.2 | 2.9 |
| FTSE All Share | 2.9 | 13.0 | 26.7 | -18.5 | 6.4 |
Source: FE: 31/03/2023
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.
