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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£201.3m

Data as at 31/10/2021.

Fund Managers

Margaret Lawson
UK Investment Director
31
Years at SVM
41
Industry Experience

Margaret joined SVM in 1990 as a founding director. Prior to co-founding SVM in 1990, Margaret was an investment manager at FS Assurance running its flagship UK fund, the FS Balanced Growth Fund. Margaret has successfully managed the SVM UK Growth Fund navigating the markets and finding growth opportunities for over 15 years. She is a recognised expert and frequent writer on domestic and global economic and market issues and is member of CFA Institute and qualified as ASIP.

Academic Qualifications:
BSc (Hons) Economics

Professional Qualifications:

ASIP

Colin McLean
Managing Director & CIO
31
Years at SVM
47
Industry Experience

Colin is the Managing Director and Chief Investment Officer at SVM. He founded SVM in 1990 following successful careers at FS Assurance, Scottish Provident and Templeton. He has helped shape global investment management and is a leading commentator and influencer on professionalism in the industry. Colin is past Chair of CFA UK and was Vice Chair of CFA Institute. He is a regular contributor to financial publications and guest on Bloomberg TV & Radio, CNBC and the BBC. 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 Power3.9
Keystone Law3.8
Wizz Air 2.6
Experian2.5
Diploma2.3
JD Sports Fashion3.8
Entain3.7
Flutter Entertainment2.3
Games Workshop1.7
AB Dynamics1.5
Kainos3.6
AVEVA1.6
Softcat1.4
Oxford Instruments1.4
Boku1.2
Intermediate Capital2.6
Impax Asset Management1.5
Beazley1.3
London Stock Exchange1.3
Draper Esprit1.2
Gamma Communications3.0
Future1.8
Team171.4
Dianomi1.1
Kin & Carta0.7
Unite Group2.0
Segro2.0
Watkin Jones1.5
LondonMetric Property1.1
Dechra Pharmaceuticals4.0
Kooth1.2
Genus0.7
Indivior0.4
Inspecs Group0.3
Croda4.1
CRH1.4
Smurfit Kappa Group1.0
Cranswick2.0
Hilton Food Group1.4
Kerry Group1.0
Revolution Beauty0.3

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 (%)

Croda4.1
Dechra Pharmaceuticals4.0
Ceres Power3.9
Keystone Law3.8
JD Sports Fashion3.8
Entain3.7
Kainos3.6
Gamma Communications3.0
Intermediate Capital2.6
Wizz Air 2.6
Rest of Portfolio64.9

Source: SVM, as at 31/10/2021

Sector Exposure (%)

Industrials35.0
Consumer Discretionary18.9
Information Technology14.8
Financials10.0
Communication Services8.2
Real Estate6.6
Health Care6.5
Materials6.5
Consumer Staples4.6

Source: SVM, as at 31/10/2021

Size Analysis (%)

Large Cap45.3
Med/Mid 25045.7
Small/Small Cap20.1

Source: SVM, as at 31/10/2021

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This Month's Featured Stock

Entain and Flutter

Entain is a multinational sports betting and gaming company that operates through both online and retail channels. In the UK, the group operates brands such as Ladbrokes and Coral. In the US, the group has a 50% stake, alongside MGM Resorts International, in BetMGM.

News that Entain had received a bid approach was not unexpected in a consolidating US market. The sizable opportunity of the nascent US market has sparked a wave of consolidation in the sector. Large US casino operators are seeking to acquire the online and technological expertise of companies like Entain. But the identity of Entain’s suitor was surprising. The assumption was that MGM Resorts would eventually return with a higher bid following the failed approach earlier in the year. Few expected DraftKings, a US leader in fantasy sports betting, to enter the fray.

DraftKings have proposed an offer of £28 per Entain share, with a cash component of £6.30 and the remainder in DraftKings equity. However, a higher cash component would have been needed by Entain’s shareholders, many of whom would be either reluctant or unable to hold DraftKings paper.

MGM Resorts did not counter with a higher offer and DraftKings’ approach proved unsuccessful. However, the rationale for MGM Resorts to eventually acquire Entain remains unchanged. With the stock currently trading at a level c.25% below DraftKings’ offer, we believe that Entain’s share price is well underpinned by the bid activity.

Flutter’s recent results disappointed, due to adverse sporting results that happen from time-to-time, and Netherlands problems. An element of the US disappointment represents higher marketing costs to take advantage of the rapid opening of new markets. Flutter has taken a lead in Safer Gambling and tied some executive compensation to this. FanDuel has a 45% share of the US online sports book market. A market-leading position gives Flutter a scale advantage.

Performance

Performance (%)

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FundIndex
1 month0.01.8
2021 YTD15.515.8
1 year34.135.9
3 years43.814.3
5 years69.527.7
Since launch*392.0175.9
Source: Lipper, as at 31/10/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202133.027.6+5.4
20201.0-18.5+19.5
2019-4.22.3-6.5
20189.76.0+3.7
201717.711.8+5.9
Source: Lipper, as at 30/09/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
623.80p
-0.13%
Class B
706.50p
-0.13%

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

Source: State Street, as at 26/11/2021.

Commentary

Tough choices lie ahead on UK economic policy. The economy has seen a strong post-Brexit bounce, supported by a pandemic response that has seen UK growth lead the G7 this year. The Government’s ambition is for a high skill, high wage, high investment and high productivity economy. But what currently characterises the UK economy is high spending, taxes and inflation: the direction taken now matters for individual stock selection.

The challenge now is less on public finances than on whether the Government can unleash opportunity in the parts of the UK economy that have previously lacked support. There will be growth for businesses that can play a part in improving national resilience through stronger domestic supply chains. And businesses in the digital economy should do well. Alongside this, the Bank of England faces a particularly difficult period for monetary policy. It hoped that a gently rising oil price would cool the inflation outlook and reduce the need for interest rate rises. But, it is now dawning on policy makers and politicians that the oil price could be squeezed much higher, forcing intervention. In a world worried about carbon, higher oil prices look like part of the solution. But the pain of adjustment to this might look unpalatable to politicians.

Inflation is undoubtedly squeezing disposable incomes, and oil prices represent an external pressure that is beyond the Bank’s control. Put simply, there are not policy tools to fight it. The issue is not if inflation might prove to be transitory, but whether politicians can soften the stresses and strains that some extreme price rises and shortages are producing. Undoubtedly, monetary policy will tighten, but this time central banks are not just responding to the bond market signals, but dealing with a painful carbon adjustment. A flattening yield curve is pointing to slower activity ahead.

This background may cool equities for a period until it is clear how individual companies are coping. But the economic change favours companies in new energy areas and those working in the digital economy with little logistical or energy constraints.

Performance

In October, SVM UK Growth Fund was unchanged compared with the return of 1.8% for the MSCI UK IMI TR Index and 0.3% for the average fund in the IA UK All Companies sector. For the 5 years to 31 October, the Fund is top quartile, returning 69.5%, compared to a return of 27.7% for the MSCI UK IMI TR Index and 38.4% for the average fund in the IA UK All Companies sector.

Trading and results

October saw generally positive portfolio performance, with profit-taking in a number of the portfolio’s recovery businesses, but good performance in growth companies: Ceres Power, Croda, Kingspan, Dechra and Kainos. Laggards in the month included travel and gaming businesses; Wizz Air and On The Beach, as well as Entain and Flutter Entertainment. Short term trading at Flutter matters less than its strategic position in the US. The recent results disappointed, with largely one-off negatives, but we believe long term valuation is driven by US growth and the likelihood of further market consolidation. The US business should be in profit within two years, and Flutter might later seek to IPO FanDuel.

In October, additional investments were made in Kape Technologies, Kooth, Marlowe and ITM Power. To fund these the holding in Redde Northgate was sold.

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 31/10/2021.

Tough choices lie ahead on UK economic policy. The economy has seen a strong post-Brexit bounce, supported by a pandemic response that has seen UK growth lead the G7 this year. The Government’s ambition is for a high skill, high wage, high investment and high productivity economy. But what currently characterises the UK economy is high spending, taxes and inflation: the direction taken now matters for individual stock selection.

The challenge now is less on public finances than on whether the Government can unleash opportunity in the parts of the UK economy that have previously lacked support. There will be growth for businesses that can play a part in improving national resilience through stronger domestic supply chains. And businesses in the digital economy should do well. Alongside this, the Bank of England faces a particularly difficult period for monetary policy. It hoped that a gently rising oil price would cool the inflation outlook and reduce the need for interest rate rises. But, it is now dawning on policy makers and politicians that the oil price could be squeezed much higher, forcing intervention. In a world worried about carbon, higher oil prices look like part of the solution. But the pain of adjustment to this might look unpalatable to politicians.

Inflation is undoubtedly squeezing disposable incomes, and oil prices represent an external pressure that is beyond the Bank’s control. Put simply, there are not policy tools to fight it. The issue is not if inflation might prove to be transitory, but whether politicians can soften the stresses and strains that some extreme price rises and shortages are producing. Undoubtedly, monetary policy will tighten, but this time central banks are not just responding to the bond market signals, but dealing with a painful carbon adjustment. A flattening yield curve is pointing to slower activity ahead.

This background may cool equities for a period until it is clear how individual companies are coping. But the economic change favours companies in new energy areas and those working in the digital economy with little logistical or energy constraints.

Performance

In October, SVM UK Growth Fund was unchanged compared with the return of 1.8% for the MSCI UK IMI TR Index and 0.3% for the average fund in the IA UK All Companies sector. For the 5 years to 31 October, the Fund is top quartile, returning 69.5%, compared to a return of 27.7% for the MSCI UK IMI TR Index and 38.4% for the average fund in the IA UK All Companies sector.

Trading and results

October saw generally positive portfolio performance, with profit-taking in a number of the portfolio’s recovery businesses, but good performance in growth companies: Ceres Power, Croda, Kingspan, Dechra and Kainos. Laggards in the month included travel and gaming businesses; Wizz Air and On The Beach, as well as Entain and Flutter Entertainment. Short term trading at Flutter matters less than its strategic position in the US. The recent results disappointed, with largely one-off negatives, but we believe long term valuation is driven by US growth and the likelihood of further market consolidation. The US business should be in profit within two years, and Flutter might later seek to IPO FanDuel.

In October, additional investments were made in Kape Technologies, Kooth, Marlowe and ITM Power. To fund these the holding in Redde Northgate was sold.

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.

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0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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