IFSL RC Brown UK Primary Opportunities | Fund Update | April 2021

April: UK market buoyancy continues as mid and small caps hit record highs

In a further busy month for new investments, Helios Underwriting, Arena Events, Duke Royalty, Chrysalis Investments and Barclays were added to the portfolio.  Music Magpie and PensionBee were purchased at IPO in what has been the strongest start to the UK IPO market in decades.

The UK market performed strongly as risk on assets were favoured as the UK’s successful vaccination roll out continued and restrictions ease. A positive start to Q1 earnings’ season is seeing companies largely match or beat earnings’ expectations. This we consider as a bullish sign and believe UK economic growth could exceed current expectations which should spur markets and sterling higher.

In April the IFSL RC Brown UK Primary Opportunities Fund rose for the sixth month in a row returning 5.43% compared with 4.29% for the FTSE All Share and 4.21% for the IA UK All Companies sector. The equity raising & IPO markets remain particularly attractive at present as the economic rebound takes hold and companies raise money in order to expand.

Purchases

Helios Underwriting

Helios is a Lloyds of London insurer. It has raised over £50m in order to fund the acquisition of smaller Lloyds insurance vehicles from individuals looking to cash out on their investment and often not wanted or understood by the next generation. Management are also seeing insurance rates harden and therefore are keen to take more of the underwriting risk than at present. We believe the equity raise to be transformational for the company, led by an experienced management team. We anticipate a significant rise in dividend payments going forward and the shares offer investors a relatively uncorrelated income stream to equity market cycles.

Arena Events

Arena supplies temporary physical structures and seating to some of the most prestigious sporting and leisure events globally including Wimbledon and the PGA Golf Tour. Unsurprisingly the company has been badly hit by the pandemic with the cancellation of events. Some of the short fall in revenue has been made up by providing temporary structures for Covid 19 testing and vaccination centres. Nevertheless, the company is now looking forward to the future and is well positioned after this equity raise to benefit from the recovery with a strong balance sheet. It has also acquired a US events company that had entered Chapter 11 bankruptcy. We believe the shares offer material upside from the current lowly valuation.

Duke Royalty

Duke Royalty provides mortgage type length loans to smaller, often family owned, businesses. We sold our holding last year on concerns the economic impact of the pandemic would have on its portfolio companies. Whilst not immune, it has weathered the storm well and we were happy to buy back in as part of a £32m raise which is to be used to diversify the company’s portfolio of lending further.

Chrysalis Investments

Chrysalis is a British investment trust focused on investing in a portfolio of fast growing, disruptive, private UK and European private companies. Its portfolio of companies includes Starling Bank, Klarna and Secret escapes. We acquired the shares as part of a £300m placing to further fund their portfolio companies.

Music Magpie

MM is a platform that allows consumers to buy, sell and rent consumer technology such as smart phones, laptops and tablets. This has the benefits of consumers being able to turn their old technology into cash and upgrade to something newer, but also importantly, MM reconditions the product, selling it for a profit with a warranty and giving it a new lease of life and preventing it from going into landfill. The company also buys and sells DVD’s, CD’s and books. We acquired the shares at IPO and believe the company is well placed to use the IPO proceeds to grow further as it looks to expand its US business.

PensionBee

PensionBee is an online platform allowing customers to combine old pension pots into one simple online plan. Founded in 2014, it is a fast growing disruptive company with over 400,000 customers. We acquired the shares at IPO as the company raised £60m to fuel further growth.

Barclays

Barclays is one of the UK’s largest banks and one of the ‘big 4’, which account for over 75% of the current account market in the UK. We took the opportunity to purchase a holding in the secondary market as a result of a 7% share price decline following its results that we believe to be overdone. Whilst we already own Lloyds Bank, we were keen to add a further UK focused bank as we see upside in the sector as the UK economy recovers from the pandemic. Trading at 0.6x book value, we believe the shares offer good value.

Sales

In what was another busy month for purchases, we raised money by selling healthcare companies Abingdon Health and SourceBio International. Profits were taken on The Hut Group and Midwich where the shares have stalled. Profits were also taken in Accrol and holdings in GlaxoSmithKline and Watches of Switzerland were trimmed on strength. As ever, we are selling or reducing holdings in those companies where we believe we have seen much of the share price upside already and investing in new primary opportunities that we believe will give us a greater return – whilst keeping a well-diversified portfolio across sectors and market capitalisations. This simple, yet effective process, is what produces the consistent outperformance that the fund delivers.

Cumulative Performance (Total Return %) – April 2021

Fund/Benchmark Name	3M to30/04/2020	6M to 30/04/2020	Year to 30/04/2020	3 Years to 30/04/2020	5 years to 30/04/2020	Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunities P Acc	13.7	39.4	36.7	23.3	67.6	500.2
Quartile Ranking IA UK All Companies	1	1	1	1	1	1
IA UK All Companies	11.2	31.4	30.3	12.6	43.7	304.4
FTSE All Share	10.6	28.5	26.0	7.7	39.9	295.4

Source: FE: 30/04/2020

Cont.

Discrete Annual Performance (Total Return %) – April 2021

Fund/Benchmark Name	Year to 30/04/2020	Year to 30/04/2020	Year to 30/04/2019	Year to 30/04/2018	Year to 30/04/2017
IFSL RC Brown UK Primary Opportunities P Acc	36.7	-12.5	3.1	8.3	25.5
Quartile Ranking IA UK All Companies	1	2	2	2	1
IA UK All Companies	30.3	-14.6	1.2	7.4	18.9
FTSE All Share	26.0	-16.7	2.6	8.2	20.1

Source: FE: 30/04/2020

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.