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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£118.1m

Data as at 31/10/2020.

Fund Managers

Neil Veitch
Global & UK Investment Director
14
Years at SVM
24
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
14
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.

Synthomer4.4
Smurfit Kappa Group3.9
CRH3.7
Alpha FMC2.9
Balfour Beatty2.8
National Grid 3.9
DCC3.8
Unilever3.7
Roche Holdings3.2
GlaxoSmithKline3.0
GVC Holdings 4.9
Tesco 4.5
Norcros4.3
Ryanair 3.5
Associated British Foods1.9
SDL 4.4
Micron Technology4.4
Team172.3
Creo Medical Group2.3
Koninklijke Philips2.0
Jadestone Energy3.7
Pantheon Resources2.6
Energean1.7
BP1.1
Savannah Energy0.5
Prudential3.5
RSA Insurance Group2.2
Legal & General1.9
Onesavings Bank1.9
Lloyds Banking Group 1.3

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 IA sector.

Top 10 Holdings (%)

GVC Holdings 4.9
Tesco 4.5
SDL 4.4
Micron Technology4.4
Synthomer4.4
Norcros4.3
Smurfit Kappa Group3.9
National Grid 3.9
DCC3.8
Unilever3.7
Rest of Portfolio57.8

Source: SVM, as at 31/10/2020

Sector Exposure (%)

Industrials29.8
Health Care13.0
Financials12.8
Consumer Services10.7
Oil & Gas10.6
Consumer Goods9.0
Technology8.8
Utilities4.6
Basic Materials4.4

Source: SVM, as at 31/10/2020

Size Analysis (%)

Large Cap50.0
Med/Mid 25022.8
Small/Small Cap27.2

Source: SVM, as at 31/10/2020

Show piebar chart

This Month's Featured Stock

Inchcape

Inchcape is a global distributor and retailer of automobiles. The group operates as a key strategic partner for many leading original equipment manufacturers (OEM’s) including Toyota, BMW and Daimler. Over 90% of the group’s operating profits come from exclusive distribution agreements. It serves markets across Asia, Australia, Latin America, Africa, and Eastern Europe, where individual countries are often too small for OEM’s to have their own direct sale model. Inchcape acts as a brand custodian, handle import and logistics, and manage dealer networks alongside a range of aftercare services.

Inchcape has benefited from increased levels of outsourcing as OEM’s have focused on their core competencies and its strong regional presence is a key advantage. Inchcape’s recent appointment as Mercedes-Benz’s distributor in Honduras wasn’t surprising given the existing relationship in Colombia. Like many companies, Inchcape’s performance in 2020 has been significantly impacted by COVID. In April only 30% of the group’s markets by revenue were open. Since then, there has been a steady recovery with most markets now open. In many of Inchcape’s markets, car sales have rebounded strongly as consumers give greater weight to the flexibility and bio-security of a personal car versus public transport.

Inchcape currently trades on a pre-COVID earnings PE of 7.5x and EV/EBITDA of 4x. With a net cash position on the balance sheet, Inchcape’s differentiation has not been appreciated by the market. As the group continues to win distribution contracts and demonstrate its ability to generate significant cash, we expect the stock to outperform.

Performance

Performance (%)

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FundIndex
1 month-3.9-3.8
2020 YTD-26.4-23.0
1 year-15.0-18.6
3 years-14.4-14.4
5 years12.08.9
Since launch*481.6102.1
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2020-11.0-16.6+5.6
2019-4.62.7-7.3
20188.95.9+3.0
201716.311.9+4.4
201613.716.8-3.1
Source: Lipper, as at 31/10/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
507.50p
0.18%
Class B
581.00p
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 27/11/2020.

Commentary

Equity markets delivered their worst monthly returns since March as the prospect of further lockdowns spooked investors. As has been the case throughout 2020, the disease outlook remains the key variable for markets. Rising infections and increasing hospitalisations led many European countries to tighten lockdown restrictions. Heightened risk aversion due to the Covid situation was exacerbated further by the impending US election. The fund returned -3.9% versus the FTSE All-share that declined -3.8%.

In response to studies carried out by the government’s scientific advisory group suggesting that the number of daily Covid deaths was in line with a “reasonable worst case” scenario, Boris Johnson announced the reintroduction of a partial lockdown. While less restrictive than the lockdown earlier in the year, it will nonetheless have a significant impact on economic activity. Investors’ initial reactions, however, appear to be to largely look through the short-term economic impact and focus on the prospect of a successful vaccine and economic recovery in 2021. Should there be any material slippage in the timeline for a vaccine markets will respond negatively.

With the mid-November deadline for trade talks between the UK and EU fast approaching, both sides talked positively about the prospects of a deal. The reduced likelihood of a ‘no deal’ outcome initially led to rebound in sterling although this petered out as risk assets came under pressure later in the month. A number of deep-rooted disagreements still need to be overcome, but we remain optimistic that a deal will be concluded.

Synthomer shares rose strongly as the group’s trading update highlighted that profits were ahead of expectations. While all divisions contributed positively, the group’s nitrile business, a producer of the polymer used in the manufacture of latex gloves, enjoyed particularly robust trading on the back of the Covid pandemic. While demand may reduce slightly from current levels, the pandemic has likely encouraged a longer lasting change in consumer behaviour that will support future growth. The improved trading performance has fed through into higher cash generation and lower debt, enhancing the prospect of further M&A activity.  Shares in Norcros gained as the manufacturer and supplier of bathroom accessories and materials announced that sales and profitability had rebounded sharply and would now be ahead of analyst’s expectations. A sharp focus on controlling costs and preserving cash led to a significant reduction in debt and the group now expects gearing to be down to 0.2x at the half year. This leaves the business on a very sound footing for when demand fully recovers. TI Fluid gained as sentiment towards the automotive sector improved as demand remained robust.

DCC declined as a couple of analysts downgraded the stock due to longer-term concerns around its end-market exposures and capital allocation. We think these concerns are overstated and the group’s core energy business is highly defensive, its balance sheet robust and its valuation attractive. Nonetheless, after raising equity to fund acquisitions the company has been slow to deploy it and a well-structured deal is probably required for the shares to recover and make new highs. The fund’s energy holdings came under pressure as the oil price declined in response to the potential impact on the global economy from additional lockdowns.

There was limited trading activity. The holding in William Hill was exited as we viewed the prospect of a higher bid as unlikely.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/10/2020.

Equity markets delivered their worst monthly returns since March as the prospect of further lockdowns spooked investors. As has been the case throughout 2020, the disease outlook remains the key variable for markets. Rising infections and increasing hospitalisations led many European countries to tighten lockdown restrictions. Heightened risk aversion due to the Covid situation was exacerbated further by the impending US election. The fund returned -3.9% versus the FTSE All-share that declined -3.8%.

In response to studies carried out by the government’s scientific advisory group suggesting that the number of daily Covid deaths was in line with a “reasonable worst case” scenario, Boris Johnson announced the reintroduction of a partial lockdown. While less restrictive than the lockdown earlier in the year, it will nonetheless have a significant impact on economic activity. Investors’ initial reactions, however, appear to be to largely look through the short-term economic impact and focus on the prospect of a successful vaccine and economic recovery in 2021. Should there be any material slippage in the timeline for a vaccine markets will respond negatively.

With the mid-November deadline for trade talks between the UK and EU fast approaching, both sides talked positively about the prospects of a deal. The reduced likelihood of a ‘no deal’ outcome initially led to rebound in sterling although this petered out as risk assets came under pressure later in the month. A number of deep-rooted disagreements still need to be overcome, but we remain optimistic that a deal will be concluded.

Synthomer shares rose strongly as the group’s trading update highlighted that profits were ahead of expectations. While all divisions contributed positively, the group’s nitrile business, a producer of the polymer used in the manufacture of latex gloves, enjoyed particularly robust trading on the back of the Covid pandemic. While demand may reduce slightly from current levels, the pandemic has likely encouraged a longer lasting change in consumer behaviour that will support future growth. The improved trading performance has fed through into higher cash generation and lower debt, enhancing the prospect of further M&A activity.  Shares in Norcros gained as the manufacturer and supplier of bathroom accessories and materials announced that sales and profitability had rebounded sharply and would now be ahead of analyst’s expectations. A sharp focus on controlling costs and preserving cash led to a significant reduction in debt and the group now expects gearing to be down to 0.2x at the half year. This leaves the business on a very sound footing for when demand fully recovers. TI Fluid gained as sentiment towards the automotive sector improved as demand remained robust.

DCC declined as a couple of analysts downgraded the stock due to longer-term concerns around its end-market exposures and capital allocation. We think these concerns are overstated and the group’s core energy business is highly defensive, its balance sheet robust and its valuation attractive. Nonetheless, after raising equity to fund acquisitions the company has been slow to deploy it and a well-structured deal is probably required for the shares to recover and make new highs. The fund’s energy holdings came under pressure as the oil price declined in response to the potential impact on the global economy from additional lockdowns.

There was limited trading activity. The holding in William Hill was exited as we viewed the prospect of a higher bid as unlikely.

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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