IFSL RC Brown UK Primary Opportunities | Fund Update | February 2025
February: FTSE 100 makes fresh highs whilst mid and small caps flounder
Large caps built on a strong start to the year as the FTSE 100 hit fresh highs, aided by stronger than expected December GDP figures, which confirmed modest growth for Q4 of 0.1%, compared with an expected contraction of 0.1%. Mid and small caps however continue to remain unloved by investors albeit there was bid interest in a further two FTSE 250 stocks, Assura and Chemring. The longer valuations remain at depressed levels, the more M&A interest is likely to be a feature of the market.
According to a recent study published by EY-Parthenon, 19% of London listed companies issued a profit warning in 2024, the third highest this century, exceeded only in 2001 and 2020. Businesses are also cutting jobs at the fastest rate since the financial crisis (excluding the Covid-19 pandemic). Whilst on the face of it these are not encouraging statistics, it does highlight the substantial caution amongst UK PLCs and modest expectations. In our view, it will not take much of an uptick in growth and expectations to drive this modestly valued UK market higher.
As mentioned last month, 2024 saw an uptick in equity fund raisings and we are seeing further evidence of companies looking to raise money to support their growth prospects.
We participated in placings in Pennon, Pinewood Technologies an Me Group International.
In February, the IFSL RC Brown UK Primary Opportunities fund returned 0.4% compared with 1.3% for the FTSE All Share and -0.6% for the IA UK All Companies sector, all on a total return basis.
Purchases
Pennon
Pennon is a UK water and waste company, owning brands such as South West Water and Bristol Water. It raised £490m as part of a rights issue in order to fund significant infrastructure investment that is required to upgrade water infrastructure in the UK. We acquired the shares as part of the rump placing of shares not taken up by existing holders.
Pinewood Technologies
Pinewood is a software provider to the automotive industry. Their platform integrates various dealership functions including sales, servicing and finance. The company raised £36m to fund the acquisition of an artificial intelligence and machine learning solutions provider which we believe we help accelerate the growth profile of the company.
Me Group International
Me Group International sells and services vending equipment across 20 countries. Its major products are photo booths, used for identification purposes, such as passports, and launderettes. We acquired the shares at a 10% discount to the previous night’s closing price as part of a secondary sell down by an institution. We consider the company to be modestly valued given its attractive growth profile in relatively defensive markets.
Sales
We exited our holding in AOTI on concerns the company is not exceeding expectations set out at IPO. We also trimmed the holding in BP on share price strength, following the disclosure that activist investor, Elliot Management, had taken a 5% stake and is putting pressure on the company to improve operational performance.
Cumulative Performance (Total Return %) – To 28 February 2025
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 3.6 | 2.3 | 14.6 | 5.7 | 27.3 | 76.4 | 518.3 |
| Quartile Ranking IA UK All Companies | 2 | 3 | 2 | 4 | 3 | 2 | 2 |
| IA UK All Companies | 2.2 | 0.9 | 12.9 | 16.6 | 36.1 | 62.9 | 369.3 |
| FTSE All Share | 5.7 | 5.2 | 18.4 | 27.7 | 53.4 | 82.7 | 440.4 |
Source: FE: 28/02/2025
Discrete Annual Performance (Total Return%) – To 28 February 2025
| Fund/Benchmark Name | Year to 28/02/2025 | Year to 28/02/2024 | Year to 28/02/2023 | Year to 28/02/2022 | Year to 28/02/2021 |
| IFSL RC Brown UK Primary Opportunities P Acc | 14.6 | -2.0 | -5.8 | 5.4 | 14.3 |
| Quartile Ranking IA UK All Companies | 2 | 4 | 4 | 3 | 1 |
| IA UK All Companies | 12.9 | 0.1 | 3.2 | 7.6 | 8.5 |
| FTSE All Share | 18.4 | 0.6 | 7.3 | 16.0 | 3.5 |
Source: FE: 28/02/2025
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.
