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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 objective of this Fund is to achieve capital growth over the long term (5 years or more) and it aims to outperform the MSCI United Kingdom IMI. The Fund will identify investment opportunities in UK companies that can grow faster than the wider markets and are capable of sustained growth. The Fund will invest at least 80% in equities and equity related instruments in UK companies. The Fund may invest in other permitted securities.

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
BenchmarkMSCI United Kingdom IMI Index
IA SectorUK All Companies
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£188.3m

Data as at 31/05/2021.

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.

Ceres Power4.2
Keystone Law3.2
Wizz Air 2.9
Experian2.7
Diploma2.4
JD Sports Fashion3.8
Entain2.9
AB Dynamics2.6
Flutter Entertainment2.4
Games Workshop2.3
Kainos2.7
AVEVA1.7
Softcat1.5
Oxford Instruments1.3
Boku1.2
Intermediate Capital2.7
Impax Asset Management1.6
London Stock Exchange1.6
Beazley1.5
Draper Esprit1.0
Gamma Communications3.5
Future1.6
Team171.4
4imprint Group0.3
Kin & Carta0.2
Unite Group2.3
Segro1.7
Watkin Jones1.5
Londonmetric Property1.0
Croda3.5
CRH1.5
Smurfit Kappa Group1.0
Cranswick2.4
Hilton Food Group1.5
Kerry Group1.0
Fevertree Drinks0.7
Dechra Pharmaceuticals3.5
Kooth1.0
Genus0.4
Inspecs Group0.3
Indivior0.3

There are no holdings in this category

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 (%)

Ceres Power4.2
JD Sports Fashion3.8
Gamma Communications3.5
Croda3.5
Dechra Pharmaceuticals3.5
Keystone Law3.2
Entain2.9
Wizz Air 2.9
Kainos2.7
Experian2.7
Rest of Portfolio67.1

Source: SVM, as at 31/05/2021

Sector Exposure (%)

Industrials32.9
Consumer Discretionary25.4
Information Technology12.7
Financials9.4
Communication Services7.2
Real Estate6.5
Materials6.0
Consumer Staples5.6
Health Care5.4

Source: SVM, as at 31/05/2021

Size Analysis (%)

Large Cap49.0
Med/Mid 25042.4
Small/Small Cap19.8

Source: SVM, as at 31/05/2021

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This Month's Featured Stock

Marks & Spencer

Marks and Spencer (M&S), one of the UK’s most venerable brands, is a retailer of food and clothing. The group operates over 1,000 stores in the UK and has a mixture of owned and franchised stores in over 60 international markets. While M&S’ recently released full-year results were heavily impacted by the Covid pandemic, this should not detract from the improvements made in recent years.

Although the group’s Clothing & Home retail stores saw revenues decline by over 50% due to enforced closures. online sales grew by over 50%. Historically, M&S’ online business had been plagued by poorly designed websites and logistical problems. In 2021, the group managed to cope with an unprecedented increase in demand during a pandemic without any significant operational hiccoughs. Indeed, having added a number of third-party brands to its online offering, the group has emerged with a stronger platform than when it entered the pandemic. The group’s food division proved resilient during the year, despite significant exposure to both travel and hospitality channels. M&S’ joint venture with Ocado launched successfully in September and will benefit in upcoming years from increasing capacity. M&S still faces many challenges.

M&S is cash-flow positive and can reduce debt as it re-shapes its property portfolio to focus on a core of 180 stores. M&S must take more radical steps to repurpose and shrink space The restructuring will need cash, but we believe that there is hidden value in property that can be released. The M&S brand is still relevant for the British consumer.

We feel though that legacy issues are more than adequately reflected in the current stock price. The share price reflects past problems, but M&S is becoming a winner online, powered by Ocado. With a strong Food brand that should disproportionately benefit from the reopening economy and a fast-improving Clothing & Home offering, M&S is well positioned to outperform.

Performance

Performance (%)

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FundIndex
1 month-2.01.2
2021 YTD6.611.2
1 year30.621.8
3 years18.53.1
5 years52.637.2
Since launch*364.6150.7
Source: Lipper, as at 31/05/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202154.624.4+30.2
2020-19.2-19.3+0.1
2019-2.26.5-8.7
201812.41.2+11.2
20178.922.3-13.4
Source: Lipper, as at 31/03/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
573.70p
0.47%
Class B
647.80p
0.50%

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

Source: State Street, as at 14/06/2021.

Commentary

The first phase of market rotation is often indiscriminate. Investors can just focus on surprise, the potential for further overshoot of expectations and the sudden ability that even bad businesses get to pass on prices. Meanwhile, growth looks less special and investors discount its future more heavily.

But now more serious thought begins. Market opinion is finely balanced between transient inflation and the possibility of it becoming embedded and racing away. Few were investing in the 1960s, so the lessons of history may be forgotten. Investors should think more about the impact of supply bottlenecks, de-globalisation, sustainability and politics. There is potential for much change in the global economy but possibly in a different direction than the exceptional circumstances of the pandemic.

Indeed, the supply restrictions that have triggered sharp price increases may be solved over the next 18 months. It might take longer to address inequalities that have worsened during the pandemic, or to build on the popular mood for a sustainable economy. Disinflationary forces remain, not least within the EU.

It is surely too soon after a great economic shock to bet on supply shortages beating the powerful long term forces of technology and demographics. Indeed, these very shortages and price rises may spur increased capital investment, finally turning round weak productivity growth. And markets should not assume that the US lack of concern on inflation means inaction by all central banks. This year may bring a tightening by the Bank of England ahead of the US Federal Reserve. Brexit has triggered more bottlenecks in the UK economy and its successful vaccination programme has spurred a sharper bounce in the economy than in much of Europe. The key to whether inflation is transient or not will not be found in wage inflation. If the Bank of England acts, the Pound would likely strengthen – cooling the economy a little but favouring domestic stocks over international earnings.

The narrative of inflation and rotation has driven some moves that may prove unsustainable. A more balanced approach to investment style may now be prudent. Within the economic changes of resilience, productivity, capex and sustainability, there is good opportunity for growth businesses.

Performance

In May, SVM UK Growth Fund returned -2.0% compared with the return of 1.2% for the MSCI UK IMI TR Index and 1.6% for the average fund in the IA UK All Companies sector. For the 5 years to 31 May, the Fund returned 52.6%, compared to a return of 37.2% for the MSCI UK IMI TR Index and 46.8% for the average fund in the IA UK All Companies sector. The market pattern currently favours value, but growth businesses with good results are being recognised. A number of businesses have both value and growth characteristics; with pricing power and also growth strategies that should win market share in their sectors.

Trading and results

May saw some portfolio stocks react well to good trading updates. Gamma Communications, Games Workshop and Cranswick each hit a new all-time high. There were also good contributions to performance from Future and K3 Capital. Ceres Power, Flutter, Ocado and ITM Power lagged in the month.

In May, new investments were made in IT services specialist, Kin & Carta, financial content marketer, Dianomi, and Marks & Spencer. Additional investment was put into CRH, MPAC Group, Loungers and Genus. Inspecs, designs and produces frames for glasses. MPAC provides packaging machinery and solutions. To fund these, part sales were made of Ocado, Premier Foods, AO World, Homeserve and Rentokil.

Your Fund remains fully invested, including likely recovery beneficiaries and strong growth businesses.

Commentary by
Margaret Lawson
UK Investment Director
Colin McLean
Managing Director & CIO
As at 31/05/2021.

The first phase of market rotation is often indiscriminate. Investors can just focus on surprise, the potential for further overshoot of expectations and the sudden ability that even bad businesses get to pass on prices. Meanwhile, growth looks less special and investors discount its future more heavily.

But now more serious thought begins. Market opinion is finely balanced between transient inflation and the possibility of it becoming embedded and racing away. Few were investing in the 1960s, so the lessons of history may be forgotten. Investors should think more about the impact of supply bottlenecks, de-globalisation, sustainability and politics. There is potential for much change in the global economy but possibly in a different direction than the exceptional circumstances of the pandemic.

Indeed, the supply restrictions that have triggered sharp price increases may be solved over the next 18 months. It might take longer to address inequalities that have worsened during the pandemic, or to build on the popular mood for a sustainable economy. Disinflationary forces remain, not least within the EU.

It is surely too soon after a great economic shock to bet on supply shortages beating the powerful long term forces of technology and demographics. Indeed, these very shortages and price rises may spur increased capital investment, finally turning round weak productivity growth. And markets should not assume that the US lack of concern on inflation means inaction by all central banks. This year may bring a tightening by the Bank of England ahead of the US Federal Reserve. Brexit has triggered more bottlenecks in the UK economy and its successful vaccination programme has spurred a sharper bounce in the economy than in much of Europe. The key to whether inflation is transient or not will not be found in wage inflation. If the Bank of England acts, the Pound would likely strengthen – cooling the economy a little but favouring domestic stocks over international earnings.

The narrative of inflation and rotation has driven some moves that may prove unsustainable. A more balanced approach to investment style may now be prudent. Within the economic changes of resilience, productivity, capex and sustainability, there is good opportunity for growth businesses.

Performance

In May, SVM UK Growth Fund returned -2.0% compared with the return of 1.2% for the MSCI UK IMI TR Index and 1.6% for the average fund in the IA UK All Companies sector. For the 5 years to 31 May, the Fund returned 52.6%, compared to a return of 37.2% for the MSCI UK IMI TR Index and 46.8% for the average fund in the IA UK All Companies sector. The market pattern currently favours value, but growth businesses with good results are being recognised. A number of businesses have both value and growth characteristics; with pricing power and also growth strategies that should win market share in their sectors.

Trading and results

May saw some portfolio stocks react well to good trading updates. Gamma Communications, Games Workshop and Cranswick each hit a new all-time high. There were also good contributions to performance from Future and K3 Capital. Ceres Power, Flutter, Ocado and ITM Power lagged in the month.

In May, new investments were made in IT services specialist, Kin & Carta, financial content marketer, Dianomi, and Marks & Spencer. Additional investment was put into CRH, MPAC Group, Loungers and Genus. Inspecs, designs and produces frames for glasses. MPAC provides packaging machinery and solutions. To fund these, part sales were made of Ocado, Premier Foods, AO World, Homeserve and Rentokil.

Your Fund remains fully invested, including likely recovery beneficiaries and strong growth businesses.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

If you would like a copy of any historic factsheets please email info@svmonline.co.uk

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 SS&C Financial Services International Limited and SS&C Financial Services Europe Limited 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.

Dealing - Funds
0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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