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SVM UK Growth Fund

SVM UK Growth Fund

Rethinking UK growth investment

The Fund’s purpose is to achieve positive returns by investing in businesses that are growing strongly and have a sustainable strategy. These businesses typically demonstrate sound capital discipline and are cash generative in nature giving management wide opportunities to grow.

SVM UK Growth Fund

Rethinking UK growth investment

The Fund’s purpose is to achieve positive returns by investing in businesses that are growing strongly and have a sustainable strategy. These businesses typically demonstrate sound capital discipline and are cash generative in nature giving management wide opportunities to grow.

Overview

Fund Objective

The Fund's aim is to achieve medium to long term capital growth from an equity portfolio selected from UK listed stocks and other permitted securities. Its objective is to beat the FTSE All-Share Index.

Approach

Independent, entrepreneurial thought is at the heart of our approach. Our search for sound growth opportunities for your portfolio takes us off the beaten track to find competitive, disciplined companies capable of sustained growth.

You can invest with confidence in our understanding of what makes a good investment, based on our long history of evaluating UK companies. Companies’ growth comes from their market position, their competitive strengths and the success of their own capital investment.

Investing in this fund, you will be buying scalable, cash-generative companies with a dominant market position and proven management. Our ability to find these companies is what drives the performance of the fund.

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Fund Details

Launch Date20 March 2000
BenchmarkFTSE All-Share Index
IA SectorUK All Companies
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£158.9m

Data as at 31/10/2020.

Fund Managers

Margaret Lawson
UK Investment Director
30
Years at SVM
40
Industry Experience

Margaret joined SVM in 1990 as a founding director. She is lead manager of the SVM UK Growth Fund.

Prior to joining SVM, Margaret worked for FS Assurance as manager of the FS Balanced Growth Fund.

Academic Qualifications:
BSc (Hons) Economics

Professional Qualifications:

ASIP

Colin McLean
Managing Director & CIO
30
Years at SVM
46
Industry Experience

Colin was MD of FS Assurance Ltd and FS Investment Managers Ltd between 1974 and 1986. He left this position to be head of investments of Scottish Provident's £2.5 billion funds, one of the group's five senior executives. In 1988 he was invited by Sir John Templeton to be MD of Templeton’s European operations. In 1990 he co-founded SVM.

Colin is a former Governor of CFA Institute and past vice-chairman of CFA UK.

He is a regular contributor to the financial publications and guest on Bloomberg TV & Radio, CNBC, BBC TV and Radio. He is a frequent conference speaker on investment, hedge funds and behavioural finance.

Academic Qualifications:
MBA (distinction) Economic Stats
MA (Hons) Political Economy

Professional Qualifications:

FSIP, FIA, FCSI

Portfolio

Strategies

The SVM UK Growth fund aims to identify best in class companies that can grow faster than the wider market over the medium term. Portfolio businesses are drawn from those that are dominant in their sector, usurpers that will come to own their space and hero franchises utilising fast growing channels. We aim to identify those opportunities earlier than our peers, not at the pioneering stage but when the model is accelerating.

This leads to a flexible diversified portfolio blending a core of sustainable growth stocks, tactical mid-term cyclical holdings and innovative business models focussing on future trends.

Ocado4.4
JD Sports Fashion3.5
Flutter Entertainment2.7
Wizz Air 2.3
GVC Holdings 1.7
AB Dynamics3.4
Experian3.3
Keystone Law2.8
Rentokil Initial 2.7
Diploma2.2
London Stock Exchange2.9
Unite Group2.0
Segro1.8
Beazley1.8
Intermediate Capital1.8
Games Workshop2.8
Cranswick2.3
Team171.8
Hilton Food Group1.7
Kerry Group1.4
Dechra Pharmaceuticals3.5
Hikma Pharmaceuticals1.1
AstraZeneca 1.0
Kooth0.5
Indivior0.2
Kainos2.8
AVEVA1.1
Softcat1.1
Blue Prism0.6
Spirent0.5
Ceres Power3.0
ITM Power1.0
Gamma Communications3.5
Croda3.3

There are no holdings in this category

Portfolio Structure

As an unconstrained fund we invest in our highest conviction ideas irrespective of market capitalisation, though there will be an emphasis on large cap holdings, or sector. As a consequence The SVM UK Growth Fund portfolio will vary considerably from the benchmark index and from other funds that are in the same IA sector.

Top 10 Holdings (%)

Ocado4.4
JD Sports Fashion3.5
Gamma Communications3.5
Dechra Pharmaceuticals3.5
AB Dynamics3.4
Croda3.3
Experian3.3
Ceres Power3.0
London Stock Exchange2.9
Kainos2.8
Rest of Portfolio66.3

Source: SVM, as at 31/10/2020

Sector Exposure (%)

Consumer Services28.9
Industrials28.4
Financials15.3
Consumer Goods12.9
Health Care6.6
Technology6.5
Oil & Gas4.1
Telecommunications3.5
Basic Materials3.3

Source: SVM, as at 31/10/2020

Size Analysis (%)

Large Cap40.2
Med/Mid 25050.7
Small/Small Cap18.6

Source: SVM, as at 31/10/2020

Show piebar chart

This Month's Featured Stock

JustEat Takeaway

JustEat Takeaway (JET) provides online food and drink delivery, serving customers in Europe, North America and Australia. It was created from the merger of a UK business, JustEat, and a Netherlands group, Takeway.com. A more recent proposed acquisition of GrubHub will take JET into the US market to become the world's biggest food delivery company outside China.

JET is now global with over 155,000 connected restaurants. The group offers a robust scalable platform and operates in a market with long term structural growth. But it is only now that mergers are bringing more discipline to the industry and creating natural monopolies for the dominant provider for food delivery in major cities. It operates on a capital-lite business model, and has some pricing power with restaurants much less able to attract customers on their own. The merger brings in better Dutch management to the business as well as creating scale.

We believe that some current competition is unsustainable in the medium and longer term and will gradually become a reduced threat. The merger has brought clearer branding with a single visual identity, which will assist marketing and sponsorship. The group can now provide an offering to multi-nationals with its ability to deliver across Europe, Australia and Canada, with the US being added in 2021. Key competitors include UberEats and Delivery Hero, but the former may face more financing issues given its business model.

While the pandemic has brought a boost to home delivery, there is long term growth potential from moving customers from phone to online orders, building on a broader acceptance of the delivery model. Although some restaurants may not re-open after the lockdowns end, those still in business have signed-up to delivery models as a matter of urgency. We believe medium and longer term value will be driven by integration of the merged businesses and growth in the restaurant network.

Performance

Performance (%)

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FundIndex
1 month-0.8-3.8
2020 YTD-7.8-23.0
1 year-0.5-18.6
3 years0.6-14.4
5 years25.08.9
Since launch*275.7102.1
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
20201.0-16.6+17.6
2019-4.22.7-6.9
20189.75.9+3.8
201717.711.9+5.8
20164.616.8-12.2
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
496.50p
-0.74%
Class B
558.10p
-0.75%

SVM funds are priced every working day at 12 noon UK time and prices are updated here shortly afterwards.

Source: State Street, as at 27/11/2020.

Commentary

International investors have withdrawn from the UK in recent years, triggered by the Brexit turmoil and parliamentary disarray that followed. Now domestic UK investors seem to be rebalancing from UK into global equities.  This has left UK shares friendless and significantly de-rated. Over the past 3 years the UK has been the laggard of the 12 largest developed markets. But the rebalancing may highlight opportunity. 

Although the move looks like diversification, the bulk of global money usually ends in an expensive and narrowly-focused US market, rather than finding value in the Eurozone, Japan or emerging markets. And investor disappointment with the UK may be largely with tracker funds, which over 5 years have struggled. Despite the cost advantage typical of tracker, the median UK unit trust has outperformed comparable indices over the past 5 years, as shown by the more than 200 funds in the IA UK All Stocks grouping. The departure of many investors from the UK, exacerbated by the MiFID II impact on quality independent research, may have left more alpha available for active managers.  It would explain the pattern over 5 years. A core and satellite model – mixing passive and active – may now begin to tilt more to active.

If there are problems in the UK market, the biggest issue has been its greater focus versus the US and Eurozone on traditional industries such as energy and banking. That is much less of a factor in mid-cap. Might a return to the UK on value considerations see active management play a bigger role?

Performance

In October, SVM UK Growth Fund returned -0.8%, compared to a return of -3.8% for the FTSE All-Share Index and -3.2% for the average fund in the IA UK All Companies sector. For the 5 years to 31 October, the Fund is top quartile, returning 25.0%, compared to a return of 8.9% for the FTSE All-Share Index and 10.5% for the average fund in the IA UK All Companies sector.

Trading and results

During the month, there were positive contributions to performance from AO World, Ceres Power, Kainos Group, Dechra Pharmaceuticals and Jet2. Laggards included Ocado, JD Sports Fashion, Cranswick and LSE. AO World gained on its trading update highlighting improvement in its German business and showing the group is a significant beneficiary of the 2020 move to online ordering. Ocado fell on concerns about a patent challenge. We believe that this type of dispute is common in the technology sector although typically taking time to resolve. Ocado has subsequently delivered a favourable trading update in early November and may be close to announcing a move into non-grocery distribution. It remains the largest portfolio investment.

Information technology business Kainos delivered a strong trading statement showing that clients are actively working to improve cloud capability and enterprise resilience. Its shares gained 27% on its update that annual results should be significantly ahead of market expectations. It is a “trusted partner” of the UK government serving digital transformation programmes in the NHS and public sector. It also has more than 200 international clients.

During the month new investments were made in Pets at Home and Volex. Additions were made to build the holdings in AO World and Avon Rubber. Alternative energy specialists, Ceres Power and ITM Power where also added to – the UK has relatively few investments focused on sustainable energy. To fund these, profit was taken on part of the AstraZeneca holding and a complete sale was made of Qinetiq.

Your Fund remains fully invested, focused on resilient growing businesses, with low exposure to commodities, oil and banks.

Commentary by
Margaret Lawson
UK Investment Director
Colin McLean
Managing Director & CIO
As at 31/10/2020.

International investors have withdrawn from the UK in recent years, triggered by the Brexit turmoil and parliamentary disarray that followed. Now domestic UK investors seem to be rebalancing from UK into global equities.  This has left UK shares friendless and significantly de-rated. Over the past 3 years the UK has been the laggard of the 12 largest developed markets. But the rebalancing may highlight opportunity. 

Although the move looks like diversification, the bulk of global money usually ends in an expensive and narrowly-focused US market, rather than finding value in the Eurozone, Japan or emerging markets. And investor disappointment with the UK may be largely with tracker funds, which over 5 years have struggled. Despite the cost advantage typical of tracker, the median UK unit trust has outperformed comparable indices over the past 5 years, as shown by the more than 200 funds in the IA UK All Stocks grouping. The departure of many investors from the UK, exacerbated by the MiFID II impact on quality independent research, may have left more alpha available for active managers.  It would explain the pattern over 5 years. A core and satellite model – mixing passive and active – may now begin to tilt more to active.

If there are problems in the UK market, the biggest issue has been its greater focus versus the US and Eurozone on traditional industries such as energy and banking. That is much less of a factor in mid-cap. Might a return to the UK on value considerations see active management play a bigger role?

Performance

In October, SVM UK Growth Fund returned -0.8%, compared to a return of -3.8% for the FTSE All-Share Index and -3.2% for the average fund in the IA UK All Companies sector. For the 5 years to 31 October, the Fund is top quartile, returning 25.0%, compared to a return of 8.9% for the FTSE All-Share Index and 10.5% for the average fund in the IA UK All Companies sector.

Trading and results

During the month, there were positive contributions to performance from AO World, Ceres Power, Kainos Group, Dechra Pharmaceuticals and Jet2. Laggards included Ocado, JD Sports Fashion, Cranswick and LSE. AO World gained on its trading update highlighting improvement in its German business and showing the group is a significant beneficiary of the 2020 move to online ordering. Ocado fell on concerns about a patent challenge. We believe that this type of dispute is common in the technology sector although typically taking time to resolve. Ocado has subsequently delivered a favourable trading update in early November and may be close to announcing a move into non-grocery distribution. It remains the largest portfolio investment.

Information technology business Kainos delivered a strong trading statement showing that clients are actively working to improve cloud capability and enterprise resilience. Its shares gained 27% on its update that annual results should be significantly ahead of market expectations. It is a “trusted partner” of the UK government serving digital transformation programmes in the NHS and public sector. It also has more than 200 international clients.

During the month new investments were made in Pets at Home and Volex. Additions were made to build the holdings in AO World and Avon Rubber. Alternative energy specialists, Ceres Power and ITM Power where also added to – the UK has relatively few investments focused on sustainable energy. To fund these, profit was taken on part of the AstraZeneca holding and a complete sale was made of Qinetiq.

Your Fund remains fully invested, focused on resilient growing businesses, with low exposure to commodities, oil and banks.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

Availability

The fund is a sub-fund within the SVM ICVC Fund, a UK domiciled Open Ended Investment Company, with UCITS status. The Funds are regulated by the UK Financial Conduct Authority.

Dealing into the fund is available daily. Deals are accepted on a forward pricing basis, with 24 hours notice. SVM employs International Financial Data Services (IFDS Group) as third party administrator and transfer agent to our funds.

How to Invest
You can invest directly with us or through a wide variety of third party wraps, supermarkets and life companies.

For each fund in the SVM ICVC range we offer a B share class which is our lowest priced clean share class.

Share class availability via third parties varies depending on their model.

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0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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