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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.

Featured Insights

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£164.1m

Data as at 30/04/2022.

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 Law4.0
Diploma2.6
Experian2.6
Rentokil Initial 2.1
Kingspan Group1.9
Entain3.4
JD Sports Fashion2.8
Flutter Entertainment1.7
Games Workshop1.6
AB Dynamics1.4
Kainos2.7
Oxford Instruments1.7
Softcat1.3
AVEVA1.2
Kape Technologies1.1
JTC2.1
London Stock Exchange1.5
Impax Asset Management1.5
Intermediate Capital1.3
Beazley1.3
Unite Group2.6
Segro2.6
Watkin Jones1.8
Londonmetric Property1.4
Industrials REIT0.2
Dechra Pharmaceuticals3.5
Kooth0.8
Indivior0.8
Genus0.5
Instem 0.5
Croda4.2
CRH1.1
Smurfit Kappa Group1.1
Gamma Communications2.4
Future1.4
Team171.2
Dianomi 0.9
4imprint Group0.3
Cranswick2.2
Hilton Food Group1.9
Marks & Spencer0.5
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 (%)

Croda4.2
Keystone Law4.0
Dechra Pharmaceuticals3.5
Entain3.4
JD Sports Fashion2.8
Kainos2.7
Unite Group2.6
Diploma2.6
Experian2.6
Segro2.6
Rest of Portfolio69.1

Source: SVM, as at 30/04/2022

Sector Exposure (%)

Industrials32.1
Consumer Discretionary15.5
Information Technology14.1
Financials9.4
Real Estate8.6
Health Care6.4
Materials6.4
Communication Services6.2
Consumer Staples4.9

Source: SVM, as at 30/04/2022

Size Analysis (%)

Large Cap32.9
Med/Mid 25047.0
Small/Small Cap23.8

Source: SVM, as at 30/04/2022

Show piebar chart

This Month's Featured Stock

Croda International

Speciality chemical group, Croda International, is a FTSE 100 constituent, capitalised at £9bn. It has a long record of growth by acquisition and organically, moving it from commodity chemicals and competitive markets into areas of specialisation and technical leadership.

The business is split with approximately 40% in consumer care, 30% in life sciences and 20% in the lower margin performance technologies. In 2021, the business enjoyed a significant boost from components for Covid-19 vaccines, which represented around one-sixth of 2021 activity. Croda enjoys high margins, particularly in its life sciences division and has been able to push through price increases. There is potential to benefit from other future mRNA vaccines. Croda has relationships with more than two-thirds of the companies that are developing mRNA treatments and should have visibility on prospects in this area via long running medical trials. Although Covid risks are receding, there is potential in Croda’s lipids for oncology and other mRNA treatments, offering upside for the shares.

Croda continues to invest heavily in its businesses, which should help it cope with some of the competitive headwinds. It is still seeing sales growth in its two largest divisions and has to date been able to pass on higher cost inflation. Although the shares are premium rated, Croda demonstrates a good free cashflow yield. A de-rating this year in the shares underlines value in the business, with the prospect of rapid growth in healthcare in particular. There is potential also for further margin improvement and an acquisition.

Performance

Performance (%)

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FundIndex
1 month-4.00.5
2022 YTD-24.52.2
1 year-19.810.3
3 years0.312.6
5 years12.725.3
Since launch*271.4189.0
Source: Lipper, as at 30/04/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2022-10.514.6-25.1
202154.624.4+30.2
2020-19.2-19.3+0.1
2019-2.26.5-8.7
201812.31.2+11.1
Source: Lipper, as at 31/03/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
427.00p
0.54%
Class B
485.40p
0.54%

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

Source: State Street, as at 16/05/2022.

Commentary

2022 is a year of shocks, many contradicting widely held views.  Size is no protection as consumers are squeezed and competition ramps up in areas that no longer have a pandemic boost. Netflix, Amazon and some other major US online consumer businesses have surprised. But despite their apparent invulnerability, many of the disappointments have come from businesses where free cashflows are poor, squeezed by capital expenditure and rising costs.  The dangers seem to be being missed by some company managements, only belatedly recognising that their business is not a monopoly and lacks pricing power. It is a crucial time to understand in detail the risks in company business models and take a critical view of management narratives.

The rotation against growth businesses has been severe and prolonged, as markets look for signs of central bank action on inflation, or indications that consumers are tightening their belts. It does look like a liquidity squeeze is underway.  Credit is tightening up, challenging lossmaking businesses and questionable operating models.  And there are some parts of the economy, such as metals exchanges, that are not well structured to handle credit problems. We can expect some surprises from businesses that are not inherently generating free cash flow or where there is too much reliance on funding from suppliers or customers. Investors need to look hard at parts of the investment world where credit is being fudged. The corporate sector and banks may overall be awash with cash but no-one at this stage in the cycle wants to bail out distressed companies.

The sell-off has been indiscriminate; many satisfactory results have been viewed harshly, derating businesses with strong market positions and pricing power. The drive to increase resilience and shorten supply chains is a powerful force for growth in businesses that are well placed for this transition. And there are other growth areas even as economies slow; including energy efficiency, sustainability and online security. Some disruptive new business models in traditional sectors have a long growth runway and are not highly rated. They are likely to continue to take market share even as the UK economy faces the prospect of recession.

The enemy of genuine growth has been easy money, allowing ailing incumbent businesses to borrow and acquire as they face competition from innovative new entrants.  Large multinationals are also the biggest losers from sanctions and an unwinding of globalisation. When the stockmarket seems a sea of red, with little respite, it is easy to lose sight of fundamentals and underlying trading progress. But many companies are coping well with the current challenges of supply disruption, inflation and weaker consumer confidence. Typically these are growth businesses with a competitive edge in business services. Investors should focus on company reporting and maintain a consistent investment approach.

Performance

SVM UK Growth Fund returned  -4.0% compared with the return of 0.5% for the MSCI UK IMI TR Index and  -1.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 April, the Fund returned 12.7%, compared to a return of 25.2% for the MSCI UK IMI TR Index and 20.9% for the average fund in the IA UK All Companies sector.

Trading and results

Over the month, there were positive contributions to performance from AB Dynamics, Keystone Law, Oxford Instruments, Jet2 and Diploma. Dechra, Gamma Communications, JD Sports and Entain were negatives in the month. In April, an addition was made to the investment in 888 Holdings. Your Fund remains fully invested, including likely recovery beneficiaries and well-funded resilient growth businesses.

Commentary by
Margaret Lawson
UK Investment Director
Colin McLean
Managing Director & CIO
As at 30/04/2022.

2022 is a year of shocks, many contradicting widely held views.  Size is no protection as consumers are squeezed and competition ramps up in areas that no longer have a pandemic boost. Netflix, Amazon and some other major US online consumer businesses have surprised. But despite their apparent invulnerability, many of the disappointments have come from businesses where free cashflows are poor, squeezed by capital expenditure and rising costs.  The dangers seem to be being missed by some company managements, only belatedly recognising that their business is not a monopoly and lacks pricing power. It is a crucial time to understand in detail the risks in company business models and take a critical view of management narratives.

The rotation against growth businesses has been severe and prolonged, as markets look for signs of central bank action on inflation, or indications that consumers are tightening their belts. It does look like a liquidity squeeze is underway.  Credit is tightening up, challenging lossmaking businesses and questionable operating models.  And there are some parts of the economy, such as metals exchanges, that are not well structured to handle credit problems. We can expect some surprises from businesses that are not inherently generating free cash flow or where there is too much reliance on funding from suppliers or customers. Investors need to look hard at parts of the investment world where credit is being fudged. The corporate sector and banks may overall be awash with cash but no-one at this stage in the cycle wants to bail out distressed companies.

The sell-off has been indiscriminate; many satisfactory results have been viewed harshly, derating businesses with strong market positions and pricing power. The drive to increase resilience and shorten supply chains is a powerful force for growth in businesses that are well placed for this transition. And there are other growth areas even as economies slow; including energy efficiency, sustainability and online security. Some disruptive new business models in traditional sectors have a long growth runway and are not highly rated. They are likely to continue to take market share even as the UK economy faces the prospect of recession.

The enemy of genuine growth has been easy money, allowing ailing incumbent businesses to borrow and acquire as they face competition from innovative new entrants.  Large multinationals are also the biggest losers from sanctions and an unwinding of globalisation. When the stockmarket seems a sea of red, with little respite, it is easy to lose sight of fundamentals and underlying trading progress. But many companies are coping well with the current challenges of supply disruption, inflation and weaker consumer confidence. Typically these are growth businesses with a competitive edge in business services. Investors should focus on company reporting and maintain a consistent investment approach.

Performance

SVM UK Growth Fund returned  -4.0% compared with the return of 0.5% for the MSCI UK IMI TR Index and  -1.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 April, the Fund returned 12.7%, compared to a return of 25.2% for the MSCI UK IMI TR Index and 20.9% for the average fund in the IA UK All Companies sector.

Trading and results

Over the month, there were positive contributions to performance from AB Dynamics, Keystone Law, Oxford Instruments, Jet2 and Diploma. Dechra, Gamma Communications, JD Sports and Entain were negatives in the month. In April, an addition was made to the investment in 888 Holdings. Your Fund remains fully invested, including likely recovery beneficiaries and well-funded resilient growth businesses.

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 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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