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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.

WATCH: Our Investment Process | UK Opportunities

SVM UK Opportunities Fund

Fresh thinking never goes out of style

WATCH: Our Investment Process | UK Opportunities

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£190.9m

Data as at 30/04/2022.

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
15
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 FMC4.5
Smurfit Kappa Group4.5
Synthomer4.3
CRH3.7
IMI 3.4
Entain4.4
Norcros4.3
Tesco 3.6
easyJet2.5
Ryanair 2.5
Jadestone Energy5.5
Pantheon Resources3.0
Energean2.6
Savannah Energy2.4
Longboat Energy1.5
Lloyds Banking Group 3.9
Legal & General2.8
Prudential2.7
OSB Group2.1
CMC Markets1.4
GlaxoSmithKline3.9
DCC3.5
Smith & Nephew2.1
Micron Technology3.9
Creo Medical Group2.3
Team170.9
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 Energy5.5
Alpha FMC4.5
Smurfit Kappa Group4.5
Entain4.4
Synthomer4.3
Norcros4.3
Lloyds Banking Group 3.9
GlaxoSmithKline3.9
Micron Technology3.9
CRH3.7
Rest of Portfolio57.0

Source: SVM, as at 30/04/2022

Sector Exposure (%)

Industrials29.0
Consumer Discretionary17.8
Financials17.4
Energy16.8
Health Care8.6
Consumer Staples5.2
Information Technology4.6
Materials3.7
Real Estate0.9
Communication Services0.4

Source: SVM, as at 30/04/2022

Size Analysis (%)

Large Cap39.8
Med/Mid 25028.9
Small/Small Cap31.2

Source: SVM, as at 30/04/2022

Show piebar chart

This Month's Featured Stock

IMI 

IMI specialises in the engineering and manufacturing of fluid control components.  The group produces a wide range of valves, actuators, and controls for a diverse set of industries including healthcare, transportation, and industrial automation.

IMI’s recently released full-year results for 2021 were testament to the improvements made to the business in recent years.  Organic revenue growth of 7% was particularly impressive given that the prior year had benefited significantly from an exceptional surge in demand for ventilator components.  Operating profit margins increased to 18% as the group benefited from operating leverage and tight cost controls.  Management reiterated their ambitions for the business to achieve longer-term growth of 5% pa with operating margins in the 18%-20% range.

Despite these strong results, however, IMI continues to be valued at a significant discount to those companies often considered ‘higher quality’ industrials.  This is a legacy of IMI’s historic reputation as a business more exposed to cyclical pressures with a reputation for underinvestment in new product growth.  We believe that these concerns are largely being addressed.  Management have used IMI’s strong balance sheet to make acquisitions in attractive sectors with the purchase of Adaptas, a life-science instrumentation manufacturer, being the latest.  A ‘Growth Hub’ has also been implemented across each division to help drive new product development, which is already augmenting organic growth.

Currently trading on an estimated 2022 PE of c.13x, IMI appears markedly undervalued.  We believe the group is well-positioned over upcoming years to deliver organic growth ahead of consensus expectations and return margins to previous peak levels and potentially beyond.  If public markets fail to appreciate the improvements made at IMI, we would expect private buyers to be interested in either parts of the group or the entire company.

Performance

Performance (%)

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FundIndex
1 month0.50.5
2022 YTD-6.72.2
1 year-1.910.3
3 years21.112.6
5 years32.125.3
Since launch*742.9189.0
Source: Lipper, as at 30/04/2022, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
202124.318.7+5.6
2020-8.1-11.7+3.6
201931.418.5+12.9
2018-11.7-9.7-2.0
201714.613.1+1.5
Source: Lipper, as at 31/12/2021, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
596.80p
0.88%
Class B
690.90p
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 16/05/2022.

Commentary

Investor confidence is low and financial markets are characterised by considerable uncertainty. UK equities spent most of the month in something of a holding pattern before finishing lower. Elsewhere, weakness was more pronounced with US markets coming under heavy pressure. Aggressive rhetoric from the Federal Reserve on the path of US interest rates pushed the dollar higher and undermined growth stocks. In contrast, the Bank of England was relatively dovish and the weakness of sterling limited the damage. The fund returned 0.6% versus the MSCI UK Index that delivered 0.5%.

The bear case for equities is straightforward: inflation is rocketing; growth forecasts have been downgraded; central banks are behind the curve; and valuations are high relative to history. We are mindful that, at times of stress, optimism is seen as naïve at best or at worst cynical and self-serving. We do believe, though, that there are reasons to be positive. Equity markets function as a discounting mechanism and financial conditions have already tightened considerably. Growth may slow further but we feel this is more likely to be a growth ‘wobble’ than a full-blown recession. We might be wrong, of course, but many cyclical stocks have already endured significant corrections and are trading at attractive valuations. Interestingly, some consumer businesses, have seen their shares initially sell-off on earnings disappointments but quickly recover and trade back to previous levels. At the risk of stating the blindingly obvious, in such an environment stock-picking is key.

With interest rates moving higher the investing backdrop continues to evolve. Most significantly, valuation is relevant again. In an environment of extremely loose monetary policy narrative has often trumped everything else, but with liquidity tightening greater importance is attached to the fundamentals. Highly rated growth companies may enjoy a sharp bounce as we reach the peak in interest rate expectations, but as markets normalise we expect the divergence in valuations to be considerably lower than has recently been the case.

The fund’s cyclical stocks generally performed well. Our energy holdings were particularly strong as European leaders adopted an increasingly robust tone towards Russia. Previously out of favour stocks such as Jersey Oil & Gas and Savannah Energy continued to attract buyers. Alpha Financial Management rose sharply as its trading update revealed that current trading was ‘significantly ahead of current market expectations’. The group commented that high client demand across all its major geographies and verticals had delivered strong double-digit organic revenue growth and further margin improvement.

Glaxo gained as first quarter results came in ahead of expectations. The group’s vaccines division was resilient, led by a recovery in demand for Shingrix, a shingles inoculation. It’s consumer business, the other major value driver within the group, also performed well and sets the division up nicely for its forthcoming spin-out. CMC Markets rose as volatility remained elevated.

Prudential underperformed as investors fretted over the impact that further Chinese lockdowns would have on the group’s sales activity. Entain fell as valuations across the sector came down in response to the deteriorating economic environment.

We continued to selectively add to our cyclical holdings. A new unit was added in Homeserve and the position in Brickability was exited.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 30/04/2022.

Investor confidence is low and financial markets are characterised by considerable uncertainty. UK equities spent most of the month in something of a holding pattern before finishing lower. Elsewhere, weakness was more pronounced with US markets coming under heavy pressure. Aggressive rhetoric from the Federal Reserve on the path of US interest rates pushed the dollar higher and undermined growth stocks. In contrast, the Bank of England was relatively dovish and the weakness of sterling limited the damage. The fund returned 0.6% versus the MSCI UK Index that delivered 0.5%.

The bear case for equities is straightforward: inflation is rocketing; growth forecasts have been downgraded; central banks are behind the curve; and valuations are high relative to history. We are mindful that, at times of stress, optimism is seen as naïve at best or at worst cynical and self-serving. We do believe, though, that there are reasons to be positive. Equity markets function as a discounting mechanism and financial conditions have already tightened considerably. Growth may slow further but we feel this is more likely to be a growth ‘wobble’ than a full-blown recession. We might be wrong, of course, but many cyclical stocks have already endured significant corrections and are trading at attractive valuations. Interestingly, some consumer businesses, have seen their shares initially sell-off on earnings disappointments but quickly recover and trade back to previous levels. At the risk of stating the blindingly obvious, in such an environment stock-picking is key.

With interest rates moving higher the investing backdrop continues to evolve. Most significantly, valuation is relevant again. In an environment of extremely loose monetary policy narrative has often trumped everything else, but with liquidity tightening greater importance is attached to the fundamentals. Highly rated growth companies may enjoy a sharp bounce as we reach the peak in interest rate expectations, but as markets normalise we expect the divergence in valuations to be considerably lower than has recently been the case.

The fund’s cyclical stocks generally performed well. Our energy holdings were particularly strong as European leaders adopted an increasingly robust tone towards Russia. Previously out of favour stocks such as Jersey Oil & Gas and Savannah Energy continued to attract buyers. Alpha Financial Management rose sharply as its trading update revealed that current trading was ‘significantly ahead of current market expectations’. The group commented that high client demand across all its major geographies and verticals had delivered strong double-digit organic revenue growth and further margin improvement.

Glaxo gained as first quarter results came in ahead of expectations. The group’s vaccines division was resilient, led by a recovery in demand for Shingrix, a shingles inoculation. It’s consumer business, the other major value driver within the group, also performed well and sets the division up nicely for its forthcoming spin-out. CMC Markets rose as volatility remained elevated.

Prudential underperformed as investors fretted over the impact that further Chinese lockdowns would have on the group’s sales activity. Entain fell as valuations across the sector came down in response to the deteriorating economic environment.

We continued to selectively add to our cyclical holdings. A new unit was added in Homeserve and the position in Brickability was exited.

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 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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