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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£190.5m

Data as at 30/06/2021.

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 Power4.0
Keystone Law3.4
Wizz Air 2.8
Diploma2.3
Experian2.2
JD Sports Fashion3.6
Entain3.1
AB Dynamics2.5
Flutter Entertainment2.3
Games Workshop2.1
Kainos2.8
AVEVA1.8
Oxford Instruments1.5
Softcat1.4
Boku1.2
Intermediate Capital2.7
London Stock Exchange1.7
Beazley1.7
Impax Asset Management1.6
Draper Esprit1.2
Gamma Communications3.5
Future1.7
Team171.5
Kin & Carta0.7
Dianomi0.6
Unite Group2.1
Segro1.8
Watkin Jones1.4
Londonmetric Property1.0
Croda3.6
CRH1.5
Smurfit Kappa Group1.1
Dechra Pharmaceuticals3.6
Kooth1.0
Genus0.5
Inspecs Group0.3
Indivior0.3
Cranswick2.4
Hilton Food Group1.4
Kerry Group1.0
Fevertree Drinks0.6

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 Power4.0
Dechra Pharmaceuticals3.6
JD Sports Fashion3.6
Croda3.6
Gamma Communications3.5
Keystone Law3.4
Entain3.1
Kainos2.8
Wizz Air 2.8
Intermediate Capital2.7
Rest of Portfolio66.9

Source: SVM, as at 30/06/2021

Sector Exposure (%)

Industrials32.8
Consumer Discretionary23.6
Information Technology12.7
Financials9.8
Communication Services8.5
Real Estate6.3
Materials6.2
Health Care5.6
Consumer Staples5.4

Source: SVM, as at 30/06/2021

Size Analysis (%)

Large Cap45.0
Med/Mid 25046.6
Small/Small Cap19.4

Source: SVM, as at 30/06/2021

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This Month's Featured Stock

Kainos Group

Kainos provides IT services, consulting and software solutions. Kainos has gained from the pandemic and the drive to cloud and resilience. The group was heavily involved in supporting the NHS response. It is well positioned in the public sector, and healthcare in particular, supporting digital transformation with innovative solutions. Kainos is now capitalised at £1.9bn and is premium rated, but has been showing strong growth in sales and profits. Growth has been a combination of organic development and selective acquisition. Profits and cashflow growth may slow a little over the next two years as it consolidates an acquisition.

Kainos’ digital service segment supports customised online digital solutions for the UK Government and private sector organisations. The UK Government has steadily increased spending on digital transformation in recent years and is one of the leading implementers of electronic government to assist delivery of public services and enhance citizen interactions. Kainos should participate in this.

With a continued drive to cloud-based solutions by businesses and enhancing resilience, Kainos is likely to remain an essential partner for major transformations, such as NHS in the UK. It has been named as one of 12 suppliers on the £800m Digital Capability for Health Framework. There is strong potential in the US where Kainos currently has a small existing presence. Kainos should expand internationally from its existing base of staff in 13 European countries.

Kainos has a strong balance sheet, good cash conversion, robust pipeline and significant backlog of contracted revenues. It is currently mid cap, dominant in some of the segments it services, but has potential to grow to be a large cap business.

Performance

Performance (%)

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FundIndex
1 month1.50.0
2021 YTD8.111.2
1 year33.020.3
3 years19.63.2
5 years71.132.7
Since launch*371.4150.6
Source: Lipper, as at 30/06/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202133.020.3+12.7
2020-4.3-14.6+10.3
2019-6.00.5-6.5
201816.29.3+6.9
201723.117.6+5.5
Source: Lipper, as at 30/06/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
600.50p
0.28%
Class B
678.70p
0.30%

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

Source: State Street, as at 03/08/2021.

Commentary

Can a strong stockmarket still be seen as cheap? UK equities have enjoyed a strong rally, with June seeing investors begin to return to growth businesses. And the gain in global markets is in part explained by central bank asset purchases now totalling almost one-third of the value of global equities. But even within this broadly based global recovery, the UK still has special attraction. This follows years of Brexit uncertainty and the withdrawal of many international investors until the trading outlook became clearer.

UK economic growth appears to be running at around 7% this year, helped by stimulation and a successful vaccination programme. Yet, the UK equity market is still below its 20 year average rating. By many measures, British shares on average stand at a discount to the rest of the world. In particular, even adjusted for the sector biases in UK listings, the UK market still lags the US and Europe in valuation. It is hard to argue that the UK is a less dynamic economy than the Eurozone; indeed, Brexit appears to have triggered renewed national purpose with a focus on resilience and sustainability.

Furlough and some stimulation schemes will soon wind-down; forbearance on some debts and tax will reverse. But there is scope for capital investment to pick-up and the currently high level of personal savings could unwind as consumers gain confidence. If there is a clear indicator of the underlying dynamism of the UK economy, it is surely the level of IPOs and the window this offers into value creation in emerging disruptive business models. Many of these enter the stockmarket as small or mid cap, but are destined to be much bigger businesses. Those new business models and technologies are likely to undermine value within some of today’s goliaths, particularly in banking and consumer sectors.

The new listings remind investors that there is a cycle in the life of companies, with risk in mature businesses that operate with legacy cost structures. No longer should big ‘blue chip’ businesses be seen as safer; many are fighting the challenge of innovative new competition. Inflation may not change this evolution. Investors may view recent months as a rotation from growth to value, but the bigger picture is that traditional legacy businesses are giving way to growing small and medium sized entrants. The UK economy is dynamic, and by many measures still offers value.

Performance

In June, SVM UK Growth Fund returned 1.5% compared with the return of 0% for the MSCI UK IMI TR Index and -0.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 June, the Fund is top quartile, returning 71.1%, compared to a return of 32.7% for the MSCI UK IMI TR Index and 51.3% for the average fund in the IA UK All Companies sector. In June, investor interest returned to growth businesses, given the dampening effect of the third wave on growth, and hopes that central bank intervention would dampen longer term inflation expectations.

Trading and results

June saw good performance in a number of the portfolio’s growth businesses. DiscoverIE Group, ITM Power, Dechra Pharmaceuticals, Keystone Law and Croda all made good contribution to performance. Laggards reflected uncertainty over lockdowns and travel; On The Beach, Unite Group and Jet2.

In June, additional investment was made in Genus, Kin & Carter, Renew Holdings and MPAC Group. The Fund participated in a placing for private equity fund, Draper Esprit. To fund these, part sale was made of Experian and full sale of Just Eat Takeaway.

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 30/06/2021.

Can a strong stockmarket still be seen as cheap? UK equities have enjoyed a strong rally, with June seeing investors begin to return to growth businesses. And the gain in global markets is in part explained by central bank asset purchases now totalling almost one-third of the value of global equities. But even within this broadly based global recovery, the UK still has special attraction. This follows years of Brexit uncertainty and the withdrawal of many international investors until the trading outlook became clearer.

UK economic growth appears to be running at around 7% this year, helped by stimulation and a successful vaccination programme. Yet, the UK equity market is still below its 20 year average rating. By many measures, British shares on average stand at a discount to the rest of the world. In particular, even adjusted for the sector biases in UK listings, the UK market still lags the US and Europe in valuation. It is hard to argue that the UK is a less dynamic economy than the Eurozone; indeed, Brexit appears to have triggered renewed national purpose with a focus on resilience and sustainability.

Furlough and some stimulation schemes will soon wind-down; forbearance on some debts and tax will reverse. But there is scope for capital investment to pick-up and the currently high level of personal savings could unwind as consumers gain confidence. If there is a clear indicator of the underlying dynamism of the UK economy, it is surely the level of IPOs and the window this offers into value creation in emerging disruptive business models. Many of these enter the stockmarket as small or mid cap, but are destined to be much bigger businesses. Those new business models and technologies are likely to undermine value within some of today’s goliaths, particularly in banking and consumer sectors.

The new listings remind investors that there is a cycle in the life of companies, with risk in mature businesses that operate with legacy cost structures. No longer should big ‘blue chip’ businesses be seen as safer; many are fighting the challenge of innovative new competition. Inflation may not change this evolution. Investors may view recent months as a rotation from growth to value, but the bigger picture is that traditional legacy businesses are giving way to growing small and medium sized entrants. The UK economy is dynamic, and by many measures still offers value.

Performance

In June, SVM UK Growth Fund returned 1.5% compared with the return of 0% for the MSCI UK IMI TR Index and -0.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 June, the Fund is top quartile, returning 71.1%, compared to a return of 32.7% for the MSCI UK IMI TR Index and 51.3% for the average fund in the IA UK All Companies sector. In June, investor interest returned to growth businesses, given the dampening effect of the third wave on growth, and hopes that central bank intervention would dampen longer term inflation expectations.

Trading and results

June saw good performance in a number of the portfolio’s growth businesses. DiscoverIE Group, ITM Power, Dechra Pharmaceuticals, Keystone Law and Croda all made good contribution to performance. Laggards reflected uncertainty over lockdowns and travel; On The Beach, Unite Group and Jet2.

In June, additional investment was made in Genus, Kin & Carter, Renew Holdings and MPAC Group. The Fund participated in a placing for private equity fund, Draper Esprit. To fund these, part sale was made of Experian and full sale of Just Eat Takeaway.

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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