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SVM UK Opportunities Fund

SVM UK Opportunities Fund

Fresh thinking never goes out of style

The Fund, led by Neil Veitch, looks to achieve positive returns by identifying and investing in organisations with sound business models where he believes the current market valuation offers an opportunity. The Fund can invest in businesses of any size.

SVM UK Opportunities Fund

Fresh thinking never goes out of style

The Fund, led by Neil Veitch, looks to achieve positive returns by identifying and investing in organisations with sound business models where he believes the current market valuation offers an opportunity. The Fund can invest in businesses of any size.

Overview

Fund Objective

The Fund's aim is to achieve medium to long-term capital growth by investing principally in UK Companies listed on the London Stock Exchange and other permitted securities.

Approach

We believe the basis of successful investing is simple. We aim to find good businesses that we can buy at an attractive price.

But it’s important how we define and identify those characteristics in detail. We don’t see value and growth as two different measures or types of investment; and we don’t measure them on the basis of current earnings and share prices.

Rather than value or growth, we invest on the basis of the value of growth. We want to find strong companies for your portfolio whose future growth is not reflected in current market expectations. We believe these companies have an attractive positive bias in their risk-reward profile which makes them potentially rewarding investments in your portfolio.

Investing in this fund, you will be buying a concentrated portfolio of companies of any size with strong, undervalued long-term prospects. You can invest with confidence in our ability to find these companies, based on our long history of comprehensive UK company analysis and financial modelling, and our understanding of what’s changing in companies and their industries.

Fund Details

Launch Date20 March 2000
BenchmarkFTSE All-Share Index
IA SectorUK All Companies
Type of SharesAccumulation
XD Date31 December
Pay Date30 April
Fund Size£86.7m

Data as at 31/03/2020.

Fund Managers

Neil Veitch
Global & UK Investment Director
14
Years at SVM
23
Industry Experience

Neil joined SVM in 2006 to manage the SVM UK Opportunities Fund. He is also lead manager of the SVM World Equity Fund and co manager of the SVM All Europe SRI Fund.

Prior to joining SVM, Neil was responsible for UK mid & small cap investments at Dutch merchant bank, Kempen Capital Management, where he also managed pan European mandates.

Academic Qualifications:
BA (Hons) Economics
MSc Investment Management

Professional Qualifications:

CFA

Craig Jeruzal
UK Investment Analyst
13
Years at SVM
15
Industry Experience

Craig joined SVM in 2006 and is responsible for SVM's SRI and Corporate Governance analysis. Craig also assists the portfolio managers in equity research.

Academic Qualifications:
MA (Hons) Politics

Professional Qualifications:

CFA

Portfolio

Risk Baskets

To help understand the overall balance of the portfolio, stocks are allocated to one of eight risk groups: defensive, cyclical, stable financial, unstable financial, consumer cyclical, oil & gas, mining and finally technology. Most of these groups are self explanatory but financials deserve some clarity. All financials are inherently unstable, but in the main, Lloyd’s underwriters and General Insurers take less balance sheet risk, so are relatively more stable than Banks or Life Assurers.

Seeing the portfolio broken down into these categories allows an understanding of how aggressive or defensive the overall portfolio is, and where risk is being taken.

DCC5.9
National Grid 5.5
GlaxoSmithKline4.7
AstraZeneca 3.3
Diageo3.0
Synthomer5.4
Balfour Beatty3.9
Smurfit Kappa Group3.2
Alpha FMC3.1
Forterra2.4
Tesco 8
Norcros4
GVC Holdings 4
Ryanair 2
Lookers 0.2
Prudential5.8
Onesavings Bank2.3
Lloyds Banking Group 2.0
M&G1.2
Jadestone Energy3.7
Energean Oil & Gas2.6
Pantheon Resources1.5
Savannah Petroleum 0.6
Jersey Oil & Gas0.5
SDL 2.8
Creo Medical Group2.4
Team171.8
Simec Atlantis Energy0.4

There are no holdings in this category

There are no holdings in this category

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 or sector. As a consequence the SVM UK Opportunities Fund portfolio will vary considerably from the benchmark index and from other funds that are in the same IMA sector.

Top 10 Holdings (%)

Tesco 7.5
DCC5.9
Prudential5.8
National Grid 5.5
Synthomer5.4
GlaxoSmithKline4.7
Norcros4.2
Balfour Beatty3.9
Jadestone Energy3.7
GVC Holdings 3.7
Rest of Portfolio49.7

Source: SVM, as at 31/03/2020

Sector Exposure (%)

Oil & Gas9.5
Basic Materials5.4
Industrials22.4
Consumer Goods9.2
Health Care10.4
Consumer Services10.1
Utilities5.8
Financials13.9
Technology2.8

Source: SVM, as at 31/03/2020

Size Analysis (%)

Large Cap44.7
Med/Mid 25020.8
Small/Small Cap34.5

Source: SVM, as at 31/03/2020

Show piebar chart

This Month's Featured Stock

Tesco

Tesco is the UK’s largest supermarket chain. The business is also a market leader in Ireland, Hungary and has a top 3 position in Poland.

The ongoing global pandemic has reiterated the defensive qualities of the supermarket sector. While other retailers saw sales fall dramatically, supermarkets received an initial surge as consumers stocked up on essentials. Sales have remained at a higher than normal rate as the lockdown continues, with people forced to eat all their meals at home. This change in consumer behaviour has not come without challenges. Supermarkets have had to adapt their practices to ensure social distancing can be maintained and hire thousands of new staff to meet the increased demand both in-store and for deliveries. The gains supermarkets have received from unexpected volume growth have been offset to varying extents by increased operating costs.

Tesco’s recent full-year results highlighted these trends. While it is difficult to look beyond the near-term disruption, over the past year Tesco has made good continued operational progress. The group has successfully disposed of its Asian operations for an enterprise value of over £8bn and ongoing synergies from the Booker acquisition were ahead of expectations.

Currently trading on an estimated 2021 PE of c.13x and a high single digit free-cash flow yield, we feel that Tesco’s valuation fails to reflect the group’s defensive qualities. When the dust settles on the coronavirus pandemic, we believe those companies that demonstrated an ability to trade well and generate cash throughout will warrant a higher rating. Tesco falls into that category.

Performance

Performance (%)

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FundIndex
1 month-23.7-18.5
2020 YTD-37.5-27.9
1 year-24.8-19.0
3 years-19.1-14.0
5 years0.20.0
Since launch*394.3125.4
Source: Lipper, as at 31/03/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2020-24.8-19.0-5.8
2019-0.43.0-3.4
20188.03.1+4.9
201714.718.4-3.7
20168.0-1.7+9.7
Source: Lipper, as at 31/03/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
416.60p
0.17%
Class B
475.20p
0.19%

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

Source: State Street, as at 22/05/2020.

Commentary

Equity markets fell precipitously in March as the spread of COVID-19 became apparent. National governments responded to the pandemic by ‘locking down’ their economies in an attempt to contain the spread of the virus and prevent their health systems from being overwhelmed. The placing of the majority of the global economy into a form of suspended animation is unprecedented and has created significant financial and economic stress. Policy makers responded appropriately. Central banks injected significant liquidity into the system while national governments took steps to support household and corporate balance sheets. The significant policy response led to equities recouping some of their losses. Nonetheless, the FTSE All-share declined  -15.1% over the month. The fund’s performance was disappointing, returning  -23.7%.

Last month we commented how we were positioned for a recovery in economic growth both in the UK and elsewhere. This was detrimental to the fund’s performance in both February and March. The fund also suffered due to its oil & gas weighting. In response to OPEC+ failing to agree to a production cut at its meeting in early March, Saudi Arabia, the largest producer in the group, announced it was increasing its production with the objective of flooding the global market with oil and pushing the price down. The most pernicious impact on the portfolio, however, was through those businesses who in normal circumstances should be fairly resilient. Bookmakers' revenue has been relatively stable through numerous recessions but what if there is no sport to bet on? IWG is cyclical but has traded through the financial crisis and the bursting of the TMT bubble, but does the corona crisis fundamentally alter demand for serviced offices? Building materials businesses with strong balance sheets such as Forterra and Norcros have traded through many downturns, but how strong does a balance sheet need to be if there is no revenue? All of these stocks were significant negative contributors during the month. Team17 was the main positive as the company released another positive update.

Trading activity was significant. In response to the emerging economic threat from the coronavirus we reduced the cyclicality of the portfolio in late February and very early March. During this period the holdings in Ashtead, Informa, IAG, Biffa, Legal and General and Wizz Air were exited at significantly higher prices than available today. The holdings in Ryanair and Lloyds were reduced. A number of less liquid holdings including Speedy Hire, Team 17, and Kainos were reduced or exited as we sought to increase the fund’s flexibility. The significant sell-off mid-month was used to add new positions in Glaxosmithkline, Astrazeneca, National Grid, Unilever, and Diageo.

We’ve written before about our unscientific, but hitherto wholly accurate, ‘muddle-through’ philosophy. Even in the depths of the global financial crisis, when investors could have been mistaken for thinking the sky was falling, we stuck to this tenet. While times were undeniably hard, the rhythm of daily life continued much the same as before. This is different. Coronavirus’ impact is not limited to the financial realm, significant as this will be, but will influence how society is structured and people behave. In recognition of this uncertainty we have retained significant flexibility in order to respond to opportunities as they evolve.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/03/2020.

Equity markets fell precipitously in March as the spread of COVID-19 became apparent. National governments responded to the pandemic by ‘locking down’ their economies in an attempt to contain the spread of the virus and prevent their health systems from being overwhelmed. The placing of the majority of the global economy into a form of suspended animation is unprecedented and has created significant financial and economic stress. Policy makers responded appropriately. Central banks injected significant liquidity into the system while national governments took steps to support household and corporate balance sheets. The significant policy response led to equities recouping some of their losses. Nonetheless, the FTSE All-share declined  -15.1% over the month. The fund’s performance was disappointing, returning  -23.7%.

Last month we commented how we were positioned for a recovery in economic growth both in the UK and elsewhere. This was detrimental to the fund’s performance in both February and March. The fund also suffered due to its oil & gas weighting. In response to OPEC+ failing to agree to a production cut at its meeting in early March, Saudi Arabia, the largest producer in the group, announced it was increasing its production with the objective of flooding the global market with oil and pushing the price down. The most pernicious impact on the portfolio, however, was through those businesses who in normal circumstances should be fairly resilient. Bookmakers' revenue has been relatively stable through numerous recessions but what if there is no sport to bet on? IWG is cyclical but has traded through the financial crisis and the bursting of the TMT bubble, but does the corona crisis fundamentally alter demand for serviced offices? Building materials businesses with strong balance sheets such as Forterra and Norcros have traded through many downturns, but how strong does a balance sheet need to be if there is no revenue? All of these stocks were significant negative contributors during the month. Team17 was the main positive as the company released another positive update.

Trading activity was significant. In response to the emerging economic threat from the coronavirus we reduced the cyclicality of the portfolio in late February and very early March. During this period the holdings in Ashtead, Informa, IAG, Biffa, Legal and General and Wizz Air were exited at significantly higher prices than available today. The holdings in Ryanair and Lloyds were reduced. A number of less liquid holdings including Speedy Hire, Team 17, and Kainos were reduced or exited as we sought to increase the fund’s flexibility. The significant sell-off mid-month was used to add new positions in Glaxosmithkline, Astrazeneca, National Grid, Unilever, and Diageo.

We’ve written before about our unscientific, but hitherto wholly accurate, ‘muddle-through’ philosophy. Even in the depths of the global financial crisis, when investors could have been mistaken for thinking the sky was falling, we stuck to this tenet. While times were undeniably hard, the rhythm of daily life continued much the same as before. This is different. Coronavirus’ impact is not limited to the financial realm, significant as this will be, but will influence how society is structured and people behave. In recognition of this uncertainty we have retained significant flexibility in order to respond to opportunities as they evolve.

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 International Financial Data Services (IFDS Group) 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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