With markets buoyant the number of primary opportunities has increased

In October, IFSL RC Brown UK Primary Opportunities (+1.1%) underperformed the UK equity market (+1.8%).

As is customary at this time of year we are seeing a plethora of primary opportunities. The IPO market resembles that of a London bus stop. With so many options we are careful about which ones we are happy to go on a journey with and can add value to the portfolio. TI Fluid Systems was the only IPO we invested in this month and we are currently doing our due diligence on a number of others.

We participated in primary placings in Palace Capital, RWS, AEW UK REIT, Randall & Quilter and Everyman Media. There were also secondary placings in 888 and One Savings Bank.

Tensions between the US and North Korea calmed somewhat though it was closer to home where political tensions heightened as Catalonia declared independence from Spain and Brexit negotiations appeared to reach an ‘impasse’. Markets appear to have become largely immune to the more volatile political landscape we have seen over the past few years as the UK and US hit new highs and Japan traded at its highest level in 21 years. Volatility is also unusually low.

Whilst we continue to see some value in UK markets, we are mindful of the current buoyancy and as ever remain selective in the primary opportunities that we participate in. Our ability to buy shares at a discount provides us with some downside protection as we are buying cheaper than the market.

Purchases

AEW UK REIT

A UK focused income REIT that buys good quality commercial properties in the UK that are typically smaller than institutional buyers would typically buy with a value of less than £15m. Net yields on the properties are typically 8-10%. As a result of the income focused nature of the fund, the dividend yield is a highly attractive 8%. The shares were acquired as part of a £28m placing to fund new purchases.

Everyman Media

A fast growing cinema chain aimed at the more discerning, affluent customer. Good quality food and drink are a core part of their proposition. Sites are much smaller than the city centre and out of town cinemas with sites typically having 2-4 screens. The shares were acquired at a small discount as part of a £17m placing to fund the rollout of new sites. They currently have 21 and aim to have over 40 in 3 years time.

Keyword Studios

Keywords is a technical services provider to the video games industry working for most of the major games developers. Its services include art and audio development. The shares were acquired as part of a £78m raise and are already showing a double digit return.

One Savings Bank

A fast growing UK challenger bank that we have previously invested in. We acquired the shares at a 6% discount as part of a placing by private equity firm JC Flowers. The shares have performed well since we purchased aided by a bid for rival Aldermore.

Palace Capital

A fast growing property company focused on regional retail, industrial and office property. We participated in a £80m raise to fund the acquisition of a portfolio of assets. This is a transformational deal for the company. Doubling it in size. The 6% dividend yield is highly attractive.

Randall & Quilter

A non life insurance company that buys legacy assets that other organisations such as insurers and re-insurers are looking to exit. The shares were acquired as part of a £47m placing to increase the capital in its Malta division where it sees further opportunities to acquire assets. The shares were acquired at an attractive 11% discount.

RWS

RWS an intellectual property and commercial translation company. The shares were acquired at a 10% discount as part of a £185m placing to fund a major acquisition that expands their global presence.

TI Fluid Systems

TI is the leading supplier of brake and fuel systems to automotive manufacturers. It is also the number 3 global producer of plastic fuel tank systems. We purchased the shares at IPO at an attractive valuation and a market leader in a growing industry. It is the largest IPO in London this year to date.

Sales

Redrow

We reduced our holding following speculation that the government’s help to buy scheme may be extended and a sharp price increase. Whilst we see the house building industry as being well supported, we are not fans of the way the industry is used as a political football which invariably increases the volatility of the sector.

FDM

One of the portfolios star performers, we modestly reduced our holding in this IT service provider following its exceptionally strong performance and given its growth rating.

Reckitt Benckiser

Previously one of our 10 largest holdings, we sold half on concerns over the slowing growth but are minded to keep a holding given investor pressure on the board for corporate activity which could see a realisation of part of the value of the business or a major acquisition. An excellent long term performer for us since purchase in 2012 in which time the shares have doubled though performance this year has stalled.

Marstons

We cut our losses following further weak newsflow from the sector. Whilst we viewed its recent acquisition as attractive, UK consumer sentiment in what is a tough environment is worse than we anticipated.

Ten Entertainment

The shares have performed very well since IPO, rising 30%, we used recent strength to take some profits. We continue to be constructive on the company and also have a holding in larger rival Hollywod Bowl.

Just Group

A small holding that performed well in the short period we held it. We used recent strength to take profits for investment in new opportunities cognoscente that the stock, though cheap, is unlikely to see a material re-rating in the medium term.

FairFX

One of our smallest holdings, we took the opportunity to realise profits following a strong run that was extended by being tipped in a retail investor newsletter. We felt the valuation had over run given the execution risks following a recent major acquisition.

Caretech

We had reduced our holding earlier in the year and took the opportunity to sell the remainder of our holding for a solid profit following a trading update.

Cumulative Performance (Total Return %)– October 2017

Fund/Benchmark Name	Year to 31/10/2017	3 Years to 31/10/2017	5 years to 31/10/2017
IFSL RC Brown UK Primary Opportunities P Acc	22.61	46.38	70.98
IA UK All Companies	15.64	33.28	69.35
FTSE All Share	13.39	31.05	62.53

Discrete Annual Performance – October 2017

Fund/Benchmark Name	31/10/2012 to 31/10/2013	31/10/2013 to 31/10/2014	31/10/2014 to 31/10/2015	31/10/2015 to 31/10/2016	31/10/2016 to 31/10/2017
IFSL RC Brown UK Primary Opportunities P Acc	17.02	-0.19	6.93	11.65	22.61
IA UK All Companies	26.60	0.37	6.86	7.85	15.64
FTSE All Share	22.76	1.03	2.99	12.22	13.39

Source: FE 2017

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.