IFSL RC Brown UK Primary Opportunities | Fund Update | September 2024

September: US follows the UK with an interest rate cut

UK equities underperformed other major markets as GDP growth stalled, coming in below expectations whilst strength in sterling, on the back of a larger US interest rate cut of 0.5%, acted as a drag given the number of large companies with significant dollar exposure. Nevertheless, a stronger pound does indicate that growth prospects for the UK economy are viewed as relatively attractive.

Towards month end, a substantial stimulus package was announced by China, sending its own stock market sharply higher. Miners and other companies sensitive to the Chinese economy followed suit.

The new Labour government’s first budget on October 30th will be closely watched amid expectations of tax rises to pay for the current budget deficit. We continue to view the election of a moderate, stable government as a positive and welcome plans for a clear industrial strategy. With the UK continuing to trade at a substantial discount to other major markets, an increase in interest from overseas investors is expected.

M&A activity increased after a brief summer lull. Segro made an all share offer for Tritax Eurobox, whilst TI Fluids and Rightmove also received bid offers.

We added to our holding in Dunelm as part of a placing by the founding family and participated in a placing in Kitwave. We also used some weakness in housebuilder Berkeley Group to add to our exposure to the house building sector which we anticipate being a major beneficiary of the new government’s infrastructure plans. We also took advantage of weak oil prices (on the back of reports that Saudi Arabia will increase production levels) to modestly add to our holdings in BP and Shell on weakness.

In September, the IFSL RC Brown UK Primary Opportunities fund returned -0.7% compared with -1.3% for the FTSE All Share and -1.3% for the IA UK All Companies sector, all on a total return basis.

***Stock in Focus***

Rightmove

The UK’s leading property website portal has received four bids in the month from Australian property company, REA Group. The shares initially soared more than 20% on the news before giving back some of the month’s gains as it became clear management were not going to recommend the bid. A part cash and part Australian listed REA Group share offer was also not viewed as highly attractive for shareholders. Nevertheless, it does confirm our view that the shares were materially undervalued when we purchased them last October and November.

Purchases

Kitwave

Kitwave is a wholesale business delivering goods including groceries, chilled food, ice cream and tobacco to smaller independent retailers and other businesses such as restaurants and cafes. It has performed strongly since IPO in 2021, consistently exceeding expectations. We purchased the shares as part of a £30m equity placing for an earnings accretive acquisition. The deal was well received with the shares now trading 15% higher than the placing price.

Dunelm

We took advantage of a secondary sell down by the founding family, adding to our existing holding at a 7% discount to the previous night’s close. We consider Dunelm a high quality retailer that we expect to benefit from a more constructive environment for the consumer as interest rates are cut.

Berkeley Group

Berkeley is a FTSE 100 house builder with developments predominantly in London and the South East. Its brands include Berkeley Homes and St George. We acquired the shares at a time of relative weakness to add to last month’s purchase of Taylor Wimpey. Both companies we believe will be beneficiaries of the new government’s house building plans and in the meantime, we are paid to wait with both offering a dividend yield in excess of 5%.

Sales

We sold the remaining modest holding in FRP Advisory having reduced the holding last month. Invinity Energy Systems was also sold following a disappointing update. Holdings in Sirius Real Estate, Unite Group, Natwest and AJ Bell were trimmed on strength in order to raise cash for the new investments.

Cumulative Performance (Total Return %) – To 30 September 2024

Fund/Benchmark Name	3M	6M	1Y	3Y	5Y	10Y	Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunities P Acc	3.4	7.5	12.3	-3.1	18.6	80.8	500.0
Quartile Ranking IA UK All Companies	2	1	3	4	3	2	2
IA UK All Companies	2.3	6.2	14.2	9.0	25.9	72.0	358.9
FTSE All Share	2.3	6.1	13.4	23.9	32.2	83.6	407.2

Source: FE: 30/09/2024

Discrete Annual Performance (Total Return%) – To 30 September 2024

Fund/Benchmark Name	Year to 30/09/2024	Year to 30/09/2023	Year to 30/09/2022	Year to 30/09/2021	Year to 30/09/2020
IFSL RC Brown UK Primary Opportunities P Acc	12.3	5.7	-18.4	40.4	-12.9
Quartile Ranking IA UK All Companies	3	4	3	1	2
IA UK All Companies	14.2	12.8	-15.3	32.4	-12.8
FTSE All Share	13.4	13.8	-4.0	27.9	-16.6

Source: FE: 30/09/2024

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.