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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 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 whose future growth is not reflected in current market expectations. The Fund may invest in 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.

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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£165m

Data as at 28/02/2021.

Fund Managers

Neil Veitch
Global & UK Investment Director
15
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.

Synthomer5.8
Smurfit Kappa Group3.5
RWS Holdings3.4
CRH3.0
Balfour Beatty2.6
Entain6.4
Norcros4.1
Ryanair 3.3
Tesco 2.8
Associated British Foods1.7
Prudential4.1
Lloyds Banking Group 3.3
Legal & General3.1
OSB Group1.9
Arden Partners0.1
Micron Technology5.5
Creo Medical Group2.9
Team171.7
Koninklijke Philips1.5
National Grid 3.4
DCC3.1
Roche Holdings2.1
GlaxoSmithKline2.0
Jadestone Energy3.5
Energean2.1
Pantheon Resources2.0
Savannah Energy0.8
Jersey Oil & Gas0.8

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 (%)

Entain6.4
Synthomer5.8
Micron Technology5.5
Norcros4.1
Prudential4.1
Smurfit Kappa Group3.5
Jadestone Energy3.5
National Grid 3.4
RWS Holdings3.4
Ryanair 3.3
Rest of Portfolio56.8

Source: SVM, as at 28/02/2021

Sector Exposure (%)

Industrials33.3
Consumer Services16.1
Financials14.1
Oil & Gas9.9
Health Care8.5
Consumer Goods7.9
Basic Materials5.8
Technology5.5
Utilities3.4

Source: SVM, as at 28/02/2021

Size Analysis (%)

Large Cap43.2
Med/Mid 25032.1
Small/Small Cap24.7

Source: SVM, as at 28/02/2021

Show piebar chart

This Month's Featured Stock

Norcros

Norcros is a supplier of bathroom and kitchen products in the UK and South Africa. The company designs and manufactures showers, taps, tiles and other related products under a wide range of brands such as Triton, Abode, and Vado.

Norcros’ operating performance in 2020 was heavily impacted by the Covid-19 pandemic and subsequent lockdowns. In the second quarter of the year, Norcros’ revenues dropped by over 40% as restrictions impacted demand. The strength of the recovery since then has been impressive. In the third quarter, Norcros saw like-for-like revenues increase by 5%. While the group benefited from a strong RMI market in the UK and positive longer-term trends for bathroom and plumbing products in South Africa, it also gained market share at the expense of competitors. Smaller rivals that lacked liquidity and funding struggled to maintain supply chains; larger multinational peers proved unable to adapt to quickly changing local circumstances. Norcros’ decentralised operating model allowed it to react nimbly, while it had sufficient scale to ensure that it could meet the demands of both existing and new customers. We expect these market share gains to prove sticky.

Norcros’ pension has always been something of a millstone around management’s neck. Although the net deficit isn’t large, gross liabilities of c.£450m are more than double the group’s market cap. The scheme, however, is super-mature with a rapidly reducing membership and the prospect of higher inflation should help lessen investor concerns.

With minimal net debt, management can also augment the group’s organic growth prospects with returns-enhancing M&A. Trading on an estimated March-2022 PE of less than 10x, we believe that Norcros’ impressive operating performance and growth prospects are not reflected in its current share price.

Performance

Performance (%)

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FundIndex
1 month7.22.2
2021 YTD7.91.4
1 year21.11.7
3 years16.30.9
5 years49.829.8
Since launch*684.2128.4
Source: Lipper, as at 28/02/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2020-8.1-11.7+3.6
201931.418.5+12.9
2018-11.7-9.7-2.0
201714.613.1+1.5
20168.617.5-8.9
Source: Lipper, as at 31/12/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
590.90p
-0.08%
Class B
677.90p
-0.09%

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

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

Commentary

Equities were mixed during February. Markets bounced early in the month as concerns over new virus variants and their potential to reduce vaccine efficacy eased. Improving vaccine sentiment and generally better than expected economic data led to a sell-off in government bonds. The increase in yields accelerated into month-end as Fed Chairman Powell testified that he remained unconcerned about the inflation outlook and US jobs data came in ahead of expectations. The volatility in the bond market led to a pullback in equities. The fund returned 7.2% for the month versus 2.2% for the MSCI UK index.

The increase in bond yields was particularly pronounced in the US where investors have become concerned that President Biden’s stimulus package will result in an increase in inflation. This has led to a spirited debate between economists about the potential for inflationary pressures to become entrenched and potentially choke off the economic recovery. The debate has not just been confined to the US. Bank of England chief economist, Andy Haldane, warned that central banks ran the risk of becoming complacent on inflation as the economy recovers from the coronavirus pandemic.

Outside of a resurgence in the virus, the potential for significantly higher bond yields is the biggest risk facing equity markets. Every strategist/economist/fund manager has offered their view on what rising yields mean for equities. The honest answer is that no-one really knows. Economists still can’t even agree what the primary determinant of long-term interest rates are. The best guess, somewhat counterintuitively, is short-term rates. Markets are complex, adaptive systems where relatively small changes in inputs can result in significant changes to outcomes. We believe that a rise in yields is more likely to result in changing relative valuations within markets, rather than the catalyst for a sustained market reversal. Volatility, however, will remain higher than usual.

At a stock level the fund benefitted from its exposure to some of the more economically sensitive sectors of the market. Oil & gas stocks rose as the oil price continued to move higher. The market appears to be gradually realising that while oil demand is unlikely to dramatically rise from pre-Covid levels, supply may well disappoint. Financials gained as the yield curve steepened further. The sector was also buoyed by a generally supportive earnings season. Lloyds results came in ahead of expectations with the closely watched net interest margin proving resilient. Prudential bounced following last month’s overreaction to the announcement that it was going to ‘spin-out’ Jackson, its US life business, as opposed to an IPO. Entain rebounded after last month’s announcement that it was no longer in takeover talks. Indeed, the shares are now higher than when discussions were terminated.

M&A activity was again a feature of the UK market. Specialty chemical maker, Synthomer, was speculated to have been approached by private equity firm, CVC Capital. Pointedly, Synthomer announced that it was not currently in takeover discussions, but never stated that it had not been approached. Takeover rumours swirled around a number of other mid-cap companies. Corporate financiers are busy and we would expect to see more bids over the next few weeks and months. Such an environment is generally positive for the fund’s performance.

Glaxo was the only disappointment as the inflection point in earnings was again pushed further to the right. New positions were taken in Associated British Foods, Reach, and Workspace Group. The holdings in Astrazeneca and Bytes Technology Group were exited and the holding in Jadestone reduced.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 28/02/2021.

Equities were mixed during February. Markets bounced early in the month as concerns over new virus variants and their potential to reduce vaccine efficacy eased. Improving vaccine sentiment and generally better than expected economic data led to a sell-off in government bonds. The increase in yields accelerated into month-end as Fed Chairman Powell testified that he remained unconcerned about the inflation outlook and US jobs data came in ahead of expectations. The volatility in the bond market led to a pullback in equities. The fund returned 7.2% for the month versus 2.2% for the MSCI UK index.

The increase in bond yields was particularly pronounced in the US where investors have become concerned that President Biden’s stimulus package will result in an increase in inflation. This has led to a spirited debate between economists about the potential for inflationary pressures to become entrenched and potentially choke off the economic recovery. The debate has not just been confined to the US. Bank of England chief economist, Andy Haldane, warned that central banks ran the risk of becoming complacent on inflation as the economy recovers from the coronavirus pandemic.

Outside of a resurgence in the virus, the potential for significantly higher bond yields is the biggest risk facing equity markets. Every strategist/economist/fund manager has offered their view on what rising yields mean for equities. The honest answer is that no-one really knows. Economists still can’t even agree what the primary determinant of long-term interest rates are. The best guess, somewhat counterintuitively, is short-term rates. Markets are complex, adaptive systems where relatively small changes in inputs can result in significant changes to outcomes. We believe that a rise in yields is more likely to result in changing relative valuations within markets, rather than the catalyst for a sustained market reversal. Volatility, however, will remain higher than usual.

At a stock level the fund benefitted from its exposure to some of the more economically sensitive sectors of the market. Oil & gas stocks rose as the oil price continued to move higher. The market appears to be gradually realising that while oil demand is unlikely to dramatically rise from pre-Covid levels, supply may well disappoint. Financials gained as the yield curve steepened further. The sector was also buoyed by a generally supportive earnings season. Lloyds results came in ahead of expectations with the closely watched net interest margin proving resilient. Prudential bounced following last month’s overreaction to the announcement that it was going to ‘spin-out’ Jackson, its US life business, as opposed to an IPO. Entain rebounded after last month’s announcement that it was no longer in takeover talks. Indeed, the shares are now higher than when discussions were terminated.

M&A activity was again a feature of the UK market. Specialty chemical maker, Synthomer, was speculated to have been approached by private equity firm, CVC Capital. Pointedly, Synthomer announced that it was not currently in takeover discussions, but never stated that it had not been approached. Takeover rumours swirled around a number of other mid-cap companies. Corporate financiers are busy and we would expect to see more bids over the next few weeks and months. Such an environment is generally positive for the fund’s performance.

Glaxo was the only disappointment as the inflection point in earnings was again pushed further to the right. New positions were taken in Associated British Foods, Reach, and Workspace Group. The holdings in Astrazeneca and Bytes Technology Group were exited and the holding in Jadestone reduced.

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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