IFSL RC Brown UK Primary Opportunities | Fund Update | April 2024
April: Significant UK market outperformance – is this a turning point?
The UK market enjoyed another strong month, as the FTSE 100 hit record highs and held its level above 8000. Notably, the UK significantly outperformed other major markets such as the US, Europe and Japan, which all retreated. Clearly, one swallow does not make a summer, but with the wave of negative headlines continuing in relation to the UK market, we cannot but wonder if we have reached that point of capitulation. The FTSE All Share return year to date is in fact similar to that of the S&P 500 in local currency terms. The evident value in the UK market continues to be highlighted with a further slew of M&A activity, the most notable being FTSE 250 companies Tyman and Darktrace and BHP Billiton tabling an all share offer for FTSE 100 constituent Anglo American.
Whilst this phenomenon of de-equitisation is not unique to the UK, it does pose the question that if new listings in the UK remain scarce, the number of companies on the stock market will continue to shrink. Much has been written about how this can be reversed and which I/we do not intend to re-hash, but broadly we support measures such as the abolition of stamp duty on UK shares, the introduction of the British ISA and measures to encourage pension funds to invest in UK companies. We shall watch this space.
After what has been a tumultuous few years with the global economy having to contend with the shocks of a Covid pandemic and the explosion of inflation following Russia’s invasion of Ukraine, we may be seeing a return to more ‘normal times’. With UK inflation anticipated to fall further, we consider a lower interest rate environment to be positive for equities and particularly modestly valued markets such as the UK. Unemployment also remains low by historical standards and the tight labour market is resulting in average pay increases above the current inflation level which we anticipate benefitting a consumer recovery.
It has been a quiet year thus far for equity fund raisings, though we are seeing a pickup in activity – as ever our aim is to buy into those companies that we consider to have strong longer term prospects at valuations we understand – at a discount to the prevailing share price.
We added Fonix Mobile and Mitie to the portfolio, taking advantage of secondary placings at a discount for both stocks.
In April, the IFSL RC Brown UK Primary Opportunities fund returned 2.7% compared with 2.5% for the FTSE All Share and 1.8% for the IA UK All Companies sector, all on a total return basis.
**Stock in focus**
Anglo American
BHP Billiton’s (also a long term holding of the fund) £31bn bid for Anglo American should not have come as a huge surprise to the market given its lowly valuation after a recent production and profit warning. Anglo’s copper exposure is seen as particularly attractive given demand for copper is expected to rise as it is a vital commodity for the transition to renewable energy. Anglo has rejected the all share takeover approach. We believe a higher offer is likely and other global miners such as Rio Tinto, Vale and Glencore, may enter the fray. We intend to maintain our holding with the expectation of a higher offer materialising.
Purchases
Fonix Mobile is a small cap mobile payments company, allowing well known institutions such as ITV and Children in Need to interact with consumers and running their competition and fund raising activities. The shares have performed consistently and strongly since IPO in 2020. We acquired the shares as part of a secondary sell down by management at a c8% discount to the prevailing share price. The shares offer a useful and growing dividend yield of over 3%.
Mitie is a broad provider of facilities management and security services to a wide range of customers including government buildings and services, shopping centres and transport hubs. With over 64,000 employees and 3,000 customers, it is a UK market leader and a constituent of the FTSE 250. We acquired the shares at a c7% discount to the prevailing share price as part of a sell down by private equity. The shares offer a useful and growing dividend yield of over 3%.
Sales
We sold the remaining holding in Sirius Real Estate which has strongly outperformed the sector this year. We had reduced our holding in BHP Billiton on miner strength, prior to its bid for Anglo American. The holdings in Natwest and HSBC were trimmed on strength in the banking sector which is benefitting from the ‘higher for longer’ interest rate environment.
Cumulative Performance (Total Return %) – To 30 April 2024
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 5.1 | 12.5 | 4.8 | -4.5 | 14.3 | 68.6 | 473.4 |
| Quartile Ranking IA UK All Companies | 3 | 4 | 3 | 4 | 3 | 2 | 2 |
| IA UK All Companies | 5.6 | 15.3 | 6.9 | 8.7 | 21.0 | 62.5 | 339.8 |
| FTSE All Share | 7.6 | 14.2 | 7.5 | 23.9 | 30.1 | 75.8 | 390.0 |
Source: FE: 30/04/2024
Discrete Annual Performance (Total Return %) – 30 April 2024
| Fund/Benchmark Name | Year to 30/04/2024 | Year to 30/04/2023 | Year to 30/04/2022 | Year to 30/04/2021 | Year to 30/04/2020 |
| IFSL RC Brown UK Primary Opportunities P Acc | 4.8 | -5.1 | -3.9 | 36.7 | -12.5 |
| Quartile Ranking IA UK All Companies | 3 | 4 | 3 | 1 | 2 |
| IA UK All Companies | 6.9 | 1.8 | -0.1 | 30.3 | -14.6 |
| FTSE All Share | 7.5 | 6.0 | 8.7 | 26.0 | -16.7 |
Source: FE: 30/04/2024
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.
