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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 will invest at least 80% in equities and equity related instruments in UK companies. 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£178.3m

Data as at 31/07/2022.

Fund Managers

Neil Veitch
Global & UK Investment Director
16
Years at SVM
25
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
16
Years at SVM
17
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.

Alpha FMC5.1
Smurfit Kappa Group4.2
IMI 3.9
CRH3.9
Synthomer3.6
Norcros4.5
Tesco 3.7
Entain3.0
Marks & Spencer2.7
Ryanair 2.3
Jadestone Energy6.1
Pantheon Resources3.1
Energean3.0
Savannah Energy2.2
Jersey Oil & Gas1.1
Lloyds Banking Group 4.1
Legal & General3.1
Prudential2.9
OSB Group2.1
DCC3.3
GSK3.2
Smith & Nephew1.8
Haleon0.7
Creo Medical Group1.8
Micron Technology0.9
ActiveOps0.7
Diurnal Group0.2

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

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 (%)

Jadestone Energy6.1
Alpha FMC5.1
Norcros4.5
Smurfit Kappa Group4.2
Lloyds Banking Group 4.1
IMI 3.9
CRH3.9
Tesco 3.7
Synthomer3.6
DCC3.3
Rest of Portfolio57.6

Source: SVM, as at 31/07/2022

Sector Exposure (%)

Industrials25.4
Energy17.8
Financials17.4
Consumer Discretionary16.7
Health Care7.0
Consumer Staples6.3
Materials3.9
Information Technology1.7
Real Estate0.9
Communication Services0.1

Source: SVM, as at 31/07/2022

Size Analysis (%)

Large Cap38.6
Med/Mid 25029.8
Small/Small Cap31.6

Source: SVM, as at 31/07/2022

Show piebar chart

This Month's Featured Stock

Inchcape

Inchcape is one of the world’s leading distributors and retailers of automobiles. The group operates as a key strategic partner across many leading original equipment manufacturers (OEM’s) including Toyota, BMW, and Daimler.

Although often grouped with other UK-listed car retailers, Inchcape has a very different business model. Around 90% of the group’s operating profits come from exclusive distribution agreements it has with auto brands to serve 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 will act as a brand custodian, handle import and logistics, and manage dealer networks alongside a range of aftercare services. As OEM’s seek to focus on their core markets, Inchcape has benefited from increased levels of outsourcing with its strong regional presence a key advantage.

Inchcape’s recently released interim results demonstrated continued strong operating performance. The group has successfully navigated an exit from the Russian market, where it had some retail operations, and increased operating profits by close to 30% despite that headwind. It was the contemporaneous announcement of the £1.3bn acquisition of Derco, however, that excited investors. Derco is the largest automobile distributor in Latin America and the deal significantly enhances Inchcape’s scale in the fast-growing region, while also bringing new marques such as Renault into the group.

Assuming the Derco deal closes at year-end, Inchcape currently trades on an estimated FY23 PE of c.10x and EV/EBITDA of less than 6x. Post deal, the group will retain a strong balance sheet affording it scope to conduct further returns enhancing M&A. As the group continues to win distribution contracts and demonstrate its ability to generate high levels of cash, we expect the stock to outperform.

Performance

Performance (%)

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FundIndex
1 month6.04.3
2022 YTD-11.71.3
1 year-9.37.4
3 years21.09.0
5 years22.120.4
Since launch*697.9186.4
Source: Lipper, as at 31/07/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2022-13.43.7-17.1
202146.220.3+25.9
2020-11.1-14.6+3.5
2019-8.20.5-8.7
201814.79.3+5.4
Source: Lipper, as at 30/06/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
585.20p
0.88%
Class B
678.70p
0.89%

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

Source: State Street, as at 16/08/2022.

Commentary

Equity markets rebounded sharply from their late June lows. A combination of positioning, resilient earnings, and less hawkish commentary from the Federal Reserve post its July meeting drove the rally. The perception that bond yields had peaked led to ‘growth’ outperforming ‘value’. The S&P 500 had its best monthly performance since late 2020, rising 9% and the technology heavy Nasdaq gained 12%. The fund returned 6.0% versus the MSCI UK index that rose 4.3%.

The sustainability of July’s rally is open to debate. Investors may well have read too much into the Federal Reserve Chairman, Jerome Powell’s, comments. Indeed, in the aftermath of his speech, several Fed officials sought to downplay the suggestion that the pace of future interest rate rises has slowed. Inflationary pressures remain acute and the Bank of England declared that it forecasts UK inflation peaking at 13% later this year. While markets may have been premature in pricing interest rates cuts in 2023, market-based measures of inflation have stabilised. For the rally to be sustained, however, there needs to be further evidence of inflation subsiding.

Pessimistic commentary from the Bank of England, industrial unrest, and the lacklustre Conservative leadership continue to weigh on sentiment towards UK equities. It might appear that there is little respite in sight but many stocks, particularly those exposed to the domestic economy, are already pricing in significant cuts to earnings. Of course, that doesn’t mean that the shares will react positively to earnings downgrades, but it does present opportunities for the longer-term investor. We continue to selectively add to our consumer and industrial cyclical holdings.

The fund’s oil & gas holdings performed well despite a decline in the oil price. Jadestone Energy rebounded from its recent decline as it resumed production at Montara earlier than anticipated. It also announced the acquisition of BP’s interests in a cluster of offshore fields in Western Australia at an attractive price. The acquisition helps allay investor concerns that deals would be hard to complete with the oil price at current levels. Jadestone’s balance sheet is strong, and it continues to pursue several other acquisition opportunities. Pantheon Resources jumped as it revealed that it completed the vertical section of its Alkaid well and that reservoir quality was better than anticipated with positive implications for both resource and productivity. The forthcoming horizontal production test remains critical for understanding the acreage’s potential. Alpha Financial rose as investors continued to digest last month’s full-year results. Automotive distributor, Inchcape, surged as it announced it was acquiring peer, Derco, for £1.3bn. Derco is the largest automobile distributor in Latin America and the deal significantly enhances Inchcape’s scale in the fast-growing region, while also bringing new marques such as Renault into the group.

Smith & Nephew dropped as interim results disappointed. After a positive start to the year growth slowed in the second quarter and margins were impacted by cost pressures. This resulted in mid-single digit downgrades to earnings forecasts but left investors fearful of a more substantial revision to management’s medium-term financial targets. Creo continued to decline despite further positive operational developments. The recent trading update disclosed that users of its Speedboat Inject tool has more than doubled compared to the previous six months and that it continued to engage with potential strategic investors.

The position in John Menzies was exited.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/07/2022.

Equity markets rebounded sharply from their late June lows. A combination of positioning, resilient earnings, and less hawkish commentary from the Federal Reserve post its July meeting drove the rally. The perception that bond yields had peaked led to ‘growth’ outperforming ‘value’. The S&P 500 had its best monthly performance since late 2020, rising 9% and the technology heavy Nasdaq gained 12%. The fund returned 6.0% versus the MSCI UK index that rose 4.3%.

The sustainability of July’s rally is open to debate. Investors may well have read too much into the Federal Reserve Chairman, Jerome Powell’s, comments. Indeed, in the aftermath of his speech, several Fed officials sought to downplay the suggestion that the pace of future interest rate rises has slowed. Inflationary pressures remain acute and the Bank of England declared that it forecasts UK inflation peaking at 13% later this year. While markets may have been premature in pricing interest rates cuts in 2023, market-based measures of inflation have stabilised. For the rally to be sustained, however, there needs to be further evidence of inflation subsiding.

Pessimistic commentary from the Bank of England, industrial unrest, and the lacklustre Conservative leadership continue to weigh on sentiment towards UK equities. It might appear that there is little respite in sight but many stocks, particularly those exposed to the domestic economy, are already pricing in significant cuts to earnings. Of course, that doesn’t mean that the shares will react positively to earnings downgrades, but it does present opportunities for the longer-term investor. We continue to selectively add to our consumer and industrial cyclical holdings.

The fund’s oil & gas holdings performed well despite a decline in the oil price. Jadestone Energy rebounded from its recent decline as it resumed production at Montara earlier than anticipated. It also announced the acquisition of BP’s interests in a cluster of offshore fields in Western Australia at an attractive price. The acquisition helps allay investor concerns that deals would be hard to complete with the oil price at current levels. Jadestone’s balance sheet is strong, and it continues to pursue several other acquisition opportunities. Pantheon Resources jumped as it revealed that it completed the vertical section of its Alkaid well and that reservoir quality was better than anticipated with positive implications for both resource and productivity. The forthcoming horizontal production test remains critical for understanding the acreage’s potential. Alpha Financial rose as investors continued to digest last month’s full-year results. Automotive distributor, Inchcape, surged as it announced it was acquiring peer, Derco, for £1.3bn. Derco is the largest automobile distributor in Latin America and the deal significantly enhances Inchcape’s scale in the fast-growing region, while also bringing new marques such as Renault into the group.

Smith & Nephew dropped as interim results disappointed. After a positive start to the year growth slowed in the second quarter and margins were impacted by cost pressures. This resulted in mid-single digit downgrades to earnings forecasts but left investors fearful of a more substantial revision to management’s medium-term financial targets. Creo continued to decline despite further positive operational developments. The recent trading update disclosed that users of its Speedboat Inject tool has more than doubled compared to the previous six months and that it continued to engage with potential strategic investors.

The position in John Menzies was exited.

Independent thinking

Monthly analysis and insights from our fund managers

Literature

Latest fact sheet

Insights

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.

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0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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