IFSL RC Brown UK Primary Opportunities | Fund Update | October 2022
October: is this market for turning?
Politics again was at the forefront as the government U-turned on its controversial mini budget of September 23. As readers will be well aware, this led to the sacking of Chancellor Kwasi Kwarteng and was soon followed by the resignation of Liz Truss, who at 49 days, proved to be the shortest serving Prime Minister in history. Whilst the political ‘goings on’ are unhelpful for UK market credibility and does little to encourage overseas investors to add exposure to what is undoubtedly a cheap market – it does show the powerful impact markets can have on forcing a government to re-think policies that are deemed detrimental to the credit worthiness of a country. The appointment of Jeremy Hunt, a fiscal Conservative, and Rishi Sunak as Prime Minister, appears to have stabilised gilt yields and sterling for now. Much focus will be on the autumn statement due to be delivered in mid-November.
Despite the difficult outlook – inflation at 10%, rising interest rates, a cost of living crisis and likely recession, and the Ukraine-Russia war that may escalate further – it is important to remember markets are forward looking and the first signs of greater certainty and economic recovery, will see equities rally. This month’s rally does provide hope that the worst of the market falls may be behind us. Balance sheets are generally strong and dividends attractive. The forecast dividend yield of the FTSE All now stands at 3.7% and offers a growing dividend income stream.
This month we added Strix, which raised money for an acquisition. The number of primary opportunities remains subdued during what would normally be one of our busiest times of the year. The political and economic uncertainty is reducing the level of equity fund raisings, though as we know from previous downturns, activity will return when some stability returns to markets. Companies only put their expansion plans on hold for so long.
In October the IFSL RC Brown UK Primary Opportunities fund returned 0.1% compared with 3.1% for both the FTSE All Share and the IA UK All Companies sector. The defensive nature of some of our largest holdings along with their dollar denominated earnings (as sterling recovered) proved unhelpful in a rising market, alongside a mixed update from Saietta which saw the shares marked down.
Purchases
Strix
Strix is a global market leader in the manufacture of kettle controls used in appliances worldwide. More recently the company has diversified into complementary areas such as water filtration products. We acquired the shares as part of a placing to fund the acquisition of Australian company Billi, whose products include water taps that produce instant filtered hot, cold and sparkling water. The company’s previous owner, Waterlogic, was forced to sell the company on competition grounds and the recent economic turmoil has allowed Strix to acquire Billi for a reduced price. In time, we anticipate the market will recognise the earnings enhancing nature of the deal.
Sales
Large holdings in Elixirr and PPHC were trimmed. Our largest holding, Shell, was also trimmed to 5% on strong results aided by high energy prices and a 15% increase in the dividend.
Cumulative Performance (Total Return %) – September 2022
| Fund/Benchmark Name | 3M to 30/09/2022 | 6M to 30/09/2022 | Year to 30/09/2022 | 3 Years to 30/09/2022 | 5 years to 30/09/2022 | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | -6.7 | -12.3 | -19.1 | 0.8 | 5.1 | 405.5 |
| Quartile Ranking IA UK All Companies | 3 | 4 | 3 | 3 | 2 | 2 |
| IA UK All Companies | -7.3 | -9.0 | -12.9 | 1.2 | 4.1 | 267.6 |
| FTSE All Share | -4.6 | -5.8 | -2.8 | 7.1 | 12.7 | 305.1 |
Source: FE: 31/10/2022
Cont.
Discrete Annual Performance (Total Return %) – September 2022
| Fund/Benchmark Name | Year to 30/09/2022 | Year to 30/09/2021 | Year to 30/09/2020 | Year to 30/09/2019 | Year to 30/09/2018 |
| IFSL RC Brown UK Primary Opportunities P Acc | -19.1 | 45.2 | -14.2 | 4.2 | 0.0 |
| Quartile Ranking IA UK All Companies | 3 | 1 | 2 | 4 | 1 |
| IA UK All Companies | -12.9 | 37.2 | -15.3 | 6.8 | -3.7 |
| FTSE All Share | -2.8 | 35.4 | -18.6 | 6.8 | -1.5 |
Source: FE: 31/10/2022
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.
