IFSL RC Brown UK Primary Opportunities | Fund Update | December 2023
December: Santa delivers a rally and so to 2024
The UK market advanced in December as the ‘Santa rally’ continued, aided by the US Federal Reserve indicating that it would cut interest rates in 2024 and UK inflation falling more than anticipated. The Mid Cap FTSE 250 again outperformed in December, being a more domestic orientated index, rising 8.2% compared with 3.9% for the more international FTSE 100. 2023 was unquestionably a difficult year for the UK and its equity market – nevertheless it is pleasing to see it finish the year in positive territory.
UK inflation fell to 3.9%, below expectations, signalling the interest rate cycle has peaked. The Bank of England and Federal Reserve both held interest rates. This is important for investors as it is supportive to equity valuations and reduces the flow of funds out of equities and into cash/fixed interest. The Israel/Hamas & Ukraine/Russia wars continue to act as a drag on investor confidence and highlight the delicate state of global geopolitics. 2024 is a significant year for elections and could contribute further to political uncertainty. Nevertheless, a peak in interest rates and the potential for cuts in 2024 along with falling inflation, are likely to underpin equity valuations into 2024.
2023 proved to be a difficult year for equity fund raisings as economic uncertainty and global instability made companies cautious about raising fresh equity to fund expansion and institutional investors tending to make do with what they have rather than being open to fresh ideas. This is understandable but there were notable fund raises by good quality companies such as Severn Trent, Big Yellow Group, JTC and Unite. We expect greater activity in 2024 as companies again focus on expansion with inflation and interest rates seemingly moving in the right direction and with interest rates at 15-year highs, raising equity relative to debt is attractive.
Sigmaroc was again introduced to the portfolio following a substantial equity fund raise.
In December the IFSL RC Brown UK Primary Opportunities fund returned 4.8% compared with 4.5% for the FTSE All Share and 5.4% for the IA UK All Companies sector, all on a total return basis.
Purchases
Sigmaroc is a construction and materials business owning quarry assets in the UK and Europe. We acquired the shares at more than a 5% discount as part of a £200m equity raise to fund the acquisition of CRH’s European lime assets in a deal worth €1bn. We view this as an attractive deal, making Sigmaroc the market leader in northern Europe for lime assets.
Sales
We took profits in Lok N Store, reducing our overweight position in property companies that have performed very strongly on expectations of interest rates peaking. We also trimmed large holdings in BHP and Astrazeneca.
Cumulative Performance (Total Return %) – To 31 December 2023
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 3.5 | 4.3 | 4.9 | 5.2 | 21.6 | 64.7 | 452.6 |
| Quartile Ranking IA UK All Companies | 3 | 3 | 4 | 3 | 4 | 2 | 2 |
| IA UK All Companies | 4.5 | 5.4 | 7.4 | 14.5 | 31.6 | 55.8 | 319.9 |
| FTSE All Share | 3.2 | 5.2 | 7.9 | 28.1 | 37.7 | 68.2 | 361.7 |
Source: FE: 31/12/2023
Discrete Annual Performance (Total Return %) – 31 December 2023
| Fund/Benchmark Name | Year to 31/12/2023 | Year to 31/12/2022 | Year to 31/12/2021 | Year to 31/12/2020 | Year to 31/12/2019 |
| IFSL RC Brown UK Primary Opportunities P Acc | 4.9 | -16.9 | 20.5 | -2.7 | 18.9 |
| Quartile Ranking IA UK All Companies | 4 | 3 | 1 | 1 | 3 |
| IA UK All Companies | 7.4 | -9.1 | 17.3 | -6.0 | 22.2 |
| FTSE All Share | 7.9 | 0.3 | 18.3 | -9.8 | 19.2 |
Source: FE: 31/12/2023
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.
