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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£204.9m

Data as at 31/12/2021.

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.

Keystone Law3.9
Ceres Power3.1
Experian2.7
Diploma2.5
Wizz Air 2.3
JD Sports Fashion3.7
Entain3.0
Flutter Entertainment1.9
Games Workshop1.7
AB Dynamics1.4
Kainos3.4
Oxford Instruments1.5
AVEVA1.5
Softcat1.3
Kape Technologies1.1
Intermediate Capital2.6
JTC2.0
Impax Asset Management2.0
Molten Ventures1.3
Beazley1.1
Gamma Communications2.7
Future1.9
Team171.5
Dianomi 1.0
4imprint Group0.2
Segro2.2
Unite Group2.0
Watkin Jones1.6
Londonmetric Property1.2
Industrials REIT0.1
Dechra Pharmaceuticals4.1
Kooth1.1
Genus0.6
Instem 0.5
Indivior0.5
Croda4.3
CRH1.1
Smurfit Kappa Group1.0
Cranswick2.1
Hilton Food Group1.4
Revolution Beauty0.3
Kerry Group0.2

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 (%)

Croda4.3
Dechra Pharmaceuticals4.1
Keystone Law3.9
JD Sports Fashion3.7
Kainos3.4
Ceres Power3.1
Entain3.0
Experian2.7
Gamma Communications2.7
Intermediate Capital2.6
Rest of Portfolio66.6

Source: SVM, as at 31/12/2021

Sector Exposure (%)

Industrials34.3
Consumer Discretionary17.6
Information Technology15.6
Financials10.9
Communication Services7.4
Real Estate7.1
Health Care7.1
Materials6.4
Consumer Staples4.0

Source: SVM, as at 31/12/2021

Size Analysis (%)

Large Cap45.8
Med/Mid 25044.5
Small/Small Cap20.1

Source: SVM, as at 31/12/2021

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This Month's Featured Stock

JTC Group

JTC is an independent provider of fund and private wealth services, providing accounting and administration in the UK, Europe, South Africa, Asia and USA.  The group has grown organically and by acquisition; it has grown revenues and been profitable every year since its formation in 1987.  20% of issued share capital is held by employees and this shared ownership is a key part of its culture.  The business is strongly cash generative, with high levels of cash conversion on revenues.

The fund administration industry offers structural growth potential, and JTC appears well positioned within this.  The investment industry continues to shift to an outsourcing model, driven by increasing complexity and compliance costs.  As JTC rebalances from private wealth and corporate services towards an increasing proportion of funds administration, its business mix is likely to become more attractive to investors and industry consolidators.

A significant US acquisition, SALI, in October 2021 offers JTC greater US presence and could accelerate growth.  SALI currently outsources fund accounting for its fund administration clients and JTC should be able to bring some of that in-house.  It was JTC’s fifth acquisition in the year.

JTC’s employee ownership model helps in a people-based business; it enjoys below average employee turnover.  No single client accounts for more than 5% of revenue and revenue streams appear well diversified.  The company has medium term guidance of 8% to 10%  net organic revenue growth.  There is potential for technology to drive cost efficiencies, adding to the contribution from acquisitions. JTC is now capitalised at over £1bn and is gaining market opportunity with its growth and scale and increasing technology capability and broader geographical reach.

Performance

Performance (%)

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FundIndex
1 month4.24.7
2021 YTD15.618.7
1 year15.618.7
3 years57.124.2
5 years65.426.8
Since launch*392.2182.8
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202115.618.7-3.1
20207.0-11.7+18.7
201927.118.5+8.6
2018-15.5-9.7-5.8
201724.613.1+11.5
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
579.30p
-0.65%
Class B
656.90p
-0.65%

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

Source: State Street, as at 14/01/2022.

Commentary

January is a time for forecasts and diets – both little discouraged by history.  Market predictions may be well intentioned, but tend to emphasise bold scenarios rather than the subtleties that drive how events actually play out.  Simply expecting more inflation or central bank intervention may not help investment analysis. Central banks are hard to call, but politicians are all too predictable.  The 2021 climate rhetoric might be quickly cast aside if a full-blown energy crisis develops.

More might be gained from deeper analysis about exactly how this could impact companies, the bond market and politics.  Falling real wages and negative real interest rates are powerful forces. The squeeze on real incomes should start to hit consumer demand, despite generally high levels of personal savings.

Fortunately, many well managed businesses are focused on government spend; improving efficiencies in services and investing for sustainability.  Despite the headwinds on technology and growth, there are growing companies rooted in the real world with visibility on demand.  Resilience in portfolios may depend on how well portfolio companies are underpinned by actual trading.

In contrast, many asset-heavy sectors may see cash flows pick-up strongly initially, but history points to the challenge of maintaining capital in the face of inflation.  Negative real interest rates make bad investment projects look profitable – incentivising businesses to destroy capital.  For a period, the change in inflation will cause distortion in company reporting, as leads and lags work through.

Not all growth businesses are jam tomorrow.  Many provide needed services in a proven business model, enjoying a moat within their niche that helps to protect margins and profitability.  But in each sector, active investors need to compare old with new.  Some disruptors have inflated valuations; and there are older businesses with the cashflows to allow a pivot in their business model. For example, oil and gas majors may be best placed to implement a green agenda and invest in alternative energy.  Traditional auto companies may win out against Tesla. The finance and banking sectors offer some similar comparisons.  Passive investing – with a blind faith in the supposed wisdom of market capitalisations – may be about to repeat its mistakes of 2000 and 2007.  Size alone is a poor guide to value.

2022 may be a year in which investment judgement is rewarded – there is often less need to be smart on the way up. As growth slows, the dangers of trend following become clearer.  Passive investing might begin to look riskier, more of a lottery.

Performance

In December, SVM UK Growth Fund returned 4.2% (B shares) compared with the return of 4.7% for the MSCI UK IMI TR Index and 4.5% for the average fund in the IA UK All Companies sector.  For the 5 years to 31 December, the Fund is top quartile, returning 65.4% (B shares), compared to a return of 26.8% for the MSCI UK IMI TR Index and 36.4% for the average fund in the IA UK All Companies sector.

Trading and results

Over the month, there were positive contributions to performance from Flutter Entertainment, Team 17, Dechra, Impax Asset Management and Oxford Instruments.  The main negatives in the month were Ceres Power, ITM Power, Kooth and Delivery Hero.  The market pattern was mixed between growth and value, with some growth shares finding support and the latest pandemic restrictions cooling economic activity.

In December, additional and new investments were made in Hilton Good Group, JTC and Ideagen.  To fund these, part sale was made of LSE.

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 31/12/2021.

January is a time for forecasts and diets – both little discouraged by history.  Market predictions may be well intentioned, but tend to emphasise bold scenarios rather than the subtleties that drive how events actually play out.  Simply expecting more inflation or central bank intervention may not help investment analysis. Central banks are hard to call, but politicians are all too predictable.  The 2021 climate rhetoric might be quickly cast aside if a full-blown energy crisis develops.

More might be gained from deeper analysis about exactly how this could impact companies, the bond market and politics.  Falling real wages and negative real interest rates are powerful forces. The squeeze on real incomes should start to hit consumer demand, despite generally high levels of personal savings.

Fortunately, many well managed businesses are focused on government spend; improving efficiencies in services and investing for sustainability.  Despite the headwinds on technology and growth, there are growing companies rooted in the real world with visibility on demand.  Resilience in portfolios may depend on how well portfolio companies are underpinned by actual trading.

In contrast, many asset-heavy sectors may see cash flows pick-up strongly initially, but history points to the challenge of maintaining capital in the face of inflation.  Negative real interest rates make bad investment projects look profitable – incentivising businesses to destroy capital.  For a period, the change in inflation will cause distortion in company reporting, as leads and lags work through.

Not all growth businesses are jam tomorrow.  Many provide needed services in a proven business model, enjoying a moat within their niche that helps to protect margins and profitability.  But in each sector, active investors need to compare old with new.  Some disruptors have inflated valuations; and there are older businesses with the cashflows to allow a pivot in their business model. For example, oil and gas majors may be best placed to implement a green agenda and invest in alternative energy.  Traditional auto companies may win out against Tesla. The finance and banking sectors offer some similar comparisons.  Passive investing – with a blind faith in the supposed wisdom of market capitalisations – may be about to repeat its mistakes of 2000 and 2007.  Size alone is a poor guide to value.

2022 may be a year in which investment judgement is rewarded – there is often less need to be smart on the way up. As growth slows, the dangers of trend following become clearer.  Passive investing might begin to look riskier, more of a lottery.

Performance

In December, SVM UK Growth Fund returned 4.2% (B shares) compared with the return of 4.7% for the MSCI UK IMI TR Index and 4.5% for the average fund in the IA UK All Companies sector.  For the 5 years to 31 December, the Fund is top quartile, returning 65.4% (B shares), compared to a return of 26.8% for the MSCI UK IMI TR Index and 36.4% for the average fund in the IA UK All Companies sector.

Trading and results

Over the month, there were positive contributions to performance from Flutter Entertainment, Team 17, Dechra, Impax Asset Management and Oxford Instruments.  The main negatives in the month were Ceres Power, ITM Power, Kooth and Delivery Hero.  The market pattern was mixed between growth and value, with some growth shares finding support and the latest pandemic restrictions cooling economic activity.

In December, additional and new investments were made in Hilton Good Group, JTC and Ideagen.  To fund these, part sale was made of LSE.

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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