February update – the strong start to 2019 in equity markets continues…

We participated in three primary opportunities in February – Blue Prism, Kromek and Gateley. Whilst by no means a busy month for primary opportunities, we are seeing a growing pipeline of potential deals despite the political uncertainty, albeit this may result in some companies deferring fund raises until the UK reaches a settlement with the EU.

In February, the IFSL RC Brown UK Primary Opportunities Fund returned +1.35% compared with +2.29% for the FTSE All Share and +1.51% for the IA UK All Companies Sector. (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) Our cash position remains elevated at over 8% giving us firepower for forthcoming primary opportunities and to take advantage in the event of further market volatility.

Markets continued their recovery from a torrid end to 2018. A more dovish tone from the Federal Reserve and an expectation of a pause in interest rate rises in the US, spurred markets. In the UK, Brexit continued to act as a shadow, as the Bank of England cut the forecast UK growth rate in 2019 to 1.2% (from 1.7%), warning that Brexit uncertainty had started to take a serious toll on the economy. Her Majesty’s opposition was also weakened by the defection of 8 Labour MP’s to form a new independent party that has also attracted 3 former Conservative MP’s.

Despite all the political shenanigans, which of course has further to run, we continue to believe the UK market to be unloved and offering value. With a UK market dividend yield in excess of 4%, regardless of the inevitable volatility, we are paid to wait and we believe greater certainty over Brexit and the health of the global economy will emerge in coming months. The latent value of UK assets was emphasised by Canadian dairy company, Saputo, tabling a bid for Dairy Crest, which has been recommended by the Board.

 

***Stock in focus***

Lloyds Banking Group
The shares have been a strong performer year to date, rebounding from a weak end to 2018 that saw equities and in particular UK domestic names, fall. This month the Company announced a £1.75bn share buyback, a 5% rise in its dividend and ‘absolute confidence’ in the UK’s economic prospects. Whilst the shares have been an unexciting long term performer for us since we purchased as part of a placing by the UK government, we see the potential for further gains and are encouraged by the stable margins and growing dividend pay out. It remains a core long term holding.

 

Purchases

Blue Prism
Blue Prism is an artificial intelligence software company and widely regarded as one of the UK’s most exciting technology companies. The shares were re-introduced to our portfolio as part of a £100m fund raise to fund further development. Following a well received trading update, the shares are showing a double digit gain on our investment so far.

Kromek
Kromek is a developer of radiation detection components for the medical, nuclear and homeland safety screening markets. We acquired the shares at a 10% discount to the previous night’s closing price, as part of a £20m raise to fund the expansion of the medical imaging business.

Gateley
Gateley is a national law firm and became the first law firm to IPO in 2015 – a deal in which we participated. We re-introduced the shares to the portfolio as part of a placing of partner’s stock at a 12% discount to the previous night’s closing

 

Sales

Sumo Digital
We sold our small remaining holding in this video games developer following a share price rally and a well received acquisition.

Clinigen
We reduced our holding in this pharmaceutical company following a rise of over 20% in the share price on the announcement of a US acquisition that is materially earnings enhancing.

ASA International
We sold our holding in this micro lender in the emerging markets following publication of its results. A number of their markets have seen substantial currency devaluations against the dollar. With a high rating even by the standards of a quality specialist lender, we were content to take profits.

 

Cumulative Performance (Total Return %)– February 2019

Fund/Benchmark Name	Year to 28/02/2019	3 Years to 28/02/2019	5 years to 28/02/2019	Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunitiess P Acc	0.05	39.67	38.41	376.65
Quartile Ranking – IA UK All Cos	2	1	1	1
IA UK All Companies	-1.33	25.34	23.01	241.52
FTSE All Share	1.70	30.46	27.57	257.37

 

Discrete Annual Performance (Total Return %)– February 2019

Fund/Benchmark Name	28/02/2018 to 28/02/2019	28/02/2017 to 28/02/2018	28/02/2016 to 28/02/2017	28/02/2015 to 28/02/2016	28/02/2014 to 28/02/2015
IFSL RC Brown UK Primary Opportunities P Acc	0.05	11.58	25.22	-2.71	1.78
Quartile Ranking – IA UK All Cos	2	1	1	2	4
IA UK All Companies	-1.33	6.59	18.93	-5.22	3.76
FTSE All Share	1.70	4.40	22.81	-7.32	5.56

Source: FE 2019

Top Ten Active Holdings

Source: RCBIM as at 28 February 2019

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 FCA. 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