IFSL RC Brown UK Primary Opportunities | Fund Update | November 2023
November: Santa rally?
Last month we commented on the market being ‘down and not out’ and this has quickly come to pass as November witnessed a market recovery, particularly in the mid cap FTSE 250 which surged 7.1% (on a total return basis) from over sold levels. The large cap FTSE 100 made more sedate progress, providing a total return of 2.3%, held back by a falling oil price and a weak dollar (many of its larger constituents have significant dollar earnings).
UK inflation fell to 4.6%, below expectations, adding further belief that 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 and 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.
November saw a resurgence in equity fund raisings as companies took advantage of greater market confidence ahead of the Christmas period. Whilst fund raising conditions remain challenging, money is available for good quality companies that are seeking funds for expansion, or in some cases to reduce debt. With interest rates at 15 year highs, raising equity relative to debt is attractive.
XP Power and Sirius Real Estate were added to the Fund as part of equity fund raisings. We took advantage of weakness in Rightmove to add a further high quality company to the portfolio. Our exposure to the property sector has increased markedly since the beginning of the year from 1% to 6% as we have used fund raisings (Big Yellow Group, Lok N Store and Sirius Real Estate) and market weakness (Land Securities and Rightmove) to add to a sector which we anticipate to be a major beneficiary of interest rate stability.
In November the IFSL RC Brown UK Primary Opportunities fund returned 3.5% compared with 3.0% for the FTSE All Share and 4.4% for the IA UK All Companies sector, all on a total return basis.
Purchases
XP Power is a manufacturer of critical power controls that are used across industries such as semi-conductors, industrial technology and healthcare. The shares have performed poorly this year following a significant profit warning. We acquired the shares as part of a £45m equity fund raise aimed at reducing the company’s debt. The company revealed it had received bid interest but management believe the company is well placed for a recovery which we concur with.
Sirius Real Estate is a property company with assets such as business parks and offices in Germany and the UK. We acquired the shares at a discount as part of a £145m equity raise to fund further acquisitions. Sirius is a constituent of the FTSE 250 and offers an attractive dividend yield of 6% whilst trading at a double digit discount to its net asset value.
Rightmove is the UK’s market leading online property portal, enabling estate agents to market homes to prospective buyers. It has more than an 80% market share of the online portal search market and operating margins in excess of 70%. A company we have long admired, we took the opportunity of a sharp fall in the shares to add the company to the portfolio for the first time. The weak share price was as a result of the purchase of No 3 market player, OnTheMarket, by US Company CoStar, which is expected to take on larger UK peers Rightmove and Zoopla. While we acknowledge the risk, we believe Rightmove to have a highly entrenched business model, and with the shares trading at 30% below their long-term average, we consider this an attractive entry point.
Sales
Underperformer Public Policy Holdings was sold whilst we trimmed the holding in 3i Infrastructure which fully participated in the FTSE 250 bounce.
Cumulative Performance (Total Return %) – To 30 November 2023
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 0.9 | -0.4 | -1.3 | 6.5 | 11.5 | 60.1 | 427.5 |
| Quartile Ranking IA UK All Companies | 1 | 3 | 3 | 3 | 3 | 2 | 2 |
| IA UK All Companies | -0.3 | -0.5 | 0.7 | 13.4 | 19.0 | 51.0 | 298.2 |
| FTSE All Share | 0.6 | 1.6 | 1.8 | 27.3 | 26.8 | 63.8 | 341.8 |
Source: FE: 30/11/2023
Discrete Annual Performance (Total Return %) – 30 November 2023
| Fund/Benchmark Name | Year to 30/11/2023 | Year to 30/11/2022 | Year to 30/11/2021 | Year to 30/11/2020 | Year to 30/11/2019 |
| IFSL RC Brown UK Primary Opportunities P Acc | -1.3 | -12.2 | 22.7 | -4.3 | 9.4 |
| Quartile Ranking IA UK All Companies | 3 | 4 | 1 | 2 | 4 |
| IA UK All Companies | 0.7 | -3.9 | 17.3 | -6.6 | 12.3 |
| FTSE All Share | 1.8 | 6.5 | 17.4 | -10.3 | 11.0 |
Source: FE: 30/11/2023
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.
