Can a strong stockmarket still be seen as cheap? UK equities have enjoyed a strong rally, with June seeing investors begin to return to growth businesses. And the gain in global markets is in part explained by central bank asset purchases now totalling almost one-third of the value of global equities. But even within this broadly based global recovery, the UK still has special attraction. This follows years of Brexit uncertainty and the withdrawal of many international investors until the trading outlook became clearer.

UK economic growth appears to be running at around 7% this year, helped by stimulation and a successful vaccination programme. Yet, the UK equity market is still below its 20 year average rating. By many measures, British shares on average stand at a discount to the rest of the world. In particular, even adjusted for the sector biases in UK listings, the UK market still lags the US and Europe in valuation. It is hard to argue that the UK is a less dynamic economy than the Eurozone; indeed, Brexit appears to have triggered renewed national purpose with a focus on resilience and sustainability.

Furlough and some stimulation schemes will soon wind-down; forbearance on some debts and tax will reverse. But there is scope for capital investment to pick-up and the currently high level of personal savings could unwind as consumers gain confidence. If there is a clear indicator of the underlying dynamism of the UK economy, it is surely the level of IPOs and the window this offers into value creation in emerging disruptive business models. Many of these enter the stockmarket as small or mid cap, but are destined to be much bigger businesses. Those new business models and technologies are likely to undermine value within some of today’s goliaths, particularly in banking and consumer sectors.

The new listings remind investors that there is a cycle in the life of companies, with risk in mature businesses that operate with legacy cost structures. No longer should big ‘blue chip’ businesses be seen as safer; many are fighting the challenge of innovative new competition. Inflation may not change this evolution. Investors may view recent months as a rotation from growth to value, but the bigger picture is that traditional legacy businesses are giving way to growing small and medium sized entrants. The UK economy is dynamic, and by many measures still offers value.

Performance

In June, SVM UK Growth Fund returned 1.5% compared with the return of 0% for the MSCI UK IMI TR Index and -0.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 June, the Fund is top quartile, returning 71.1%, compared to a return of 32.7% for the MSCI UK IMI TR Index and 51.3% for the average fund in the IA UK All Companies sector. In June, investor interest returned to growth businesses, given the dampening effect of the third wave on growth, and hopes that central bank intervention would dampen longer term inflation expectations.

Trading and results

June saw good performance in a number of the portfolio’s growth businesses. DiscoverIE Group, ITM Power, Dechra Pharmaceuticals, Keystone Law and Croda all made good contribution to performance. Laggards reflected uncertainty over lockdowns and travel; On The Beach, Unite Group and Jet2.

In June, additional investment was made in Genus, Kin & Carter, Renew Holdings and MPAC Group. The Fund participated in a placing for private equity fund, Draper Esprit. To fund these, part sale was made of Experian and full sale of Just Eat Takeaway.

Your Fund remains fully invested, including likely recovery beneficiaries and strong growth businesses.

Can a strong stockmarket still be seen as cheap? UK equities have enjoyed a strong rally, with June seeing investors begin to return to growth businesses. And the gain in global markets is in part explained by central bank asset purchases now totalling almost one-third of the value of global equities. But even within this broadly based global recovery, the UK still has special attraction. This follows years of Brexit uncertainty and the withdrawal of many international investors until the trading outlook became clearer.

UK economic growth appears to be running at around 7% this year, helped by stimulation and a successful vaccination programme. Yet, the UK equity market is still below its 20 year average rating. By many measures, British shares on average stand at a discount to the rest of the world. In particular, even adjusted for the sector biases in UK listings, the UK market still lags the US and Europe in valuation. It is hard to argue that the UK is a less dynamic economy than the Eurozone; indeed, Brexit appears to have triggered renewed national purpose with a focus on resilience and sustainability.

Furlough and some stimulation schemes will soon wind-down; forbearance on some debts and tax will reverse. But there is scope for capital investment to pick-up and the currently high level of personal savings could unwind as consumers gain confidence. If there is a clear indicator of the underlying dynamism of the UK economy, it is surely the level of IPOs and the window this offers into value creation in emerging disruptive business models. Many of these enter the stockmarket as small or mid cap, but are destined to be much bigger businesses. Those new business models and technologies are likely to undermine value within some of today’s goliaths, particularly in banking and consumer sectors.

The new listings remind investors that there is a cycle in the life of companies, with risk in mature businesses that operate with legacy cost structures. No longer should big ‘blue chip’ businesses be seen as safer; many are fighting the challenge of innovative new competition. Inflation may not change this evolution. Investors may view recent months as a rotation from growth to value, but the bigger picture is that traditional legacy businesses are giving way to growing small and medium sized entrants. The UK economy is dynamic, and by many measures still offers value.

Performance

In June, SVM UK Growth Fund returned 1.5% compared with the return of 0% for the MSCI UK IMI TR Index and -0.2% for the average fund in the IA UK All Companies sector. For the 5 years to 30 June, the Fund is top quartile, returning 71.1%, compared to a return of 32.7% for the MSCI UK IMI TR Index and 51.3% for the average fund in the IA UK All Companies sector. In June, investor interest returned to growth businesses, given the dampening effect of the third wave on growth, and hopes that central bank intervention would dampen longer term inflation expectations.

Trading and results

June saw good performance in a number of the portfolio’s growth businesses. DiscoverIE Group, ITM Power, Dechra Pharmaceuticals, Keystone Law and Croda all made good contribution to performance. Laggards reflected uncertainty over lockdowns and travel; On The Beach, Unite Group and Jet2.

In June, additional investment was made in Genus, Kin & Carter, Renew Holdings and MPAC Group. The Fund participated in a placing for private equity fund, Draper Esprit. To fund these, part sale was made of Experian and full sale of Just Eat Takeaway.

Your Fund remains fully invested, including likely recovery beneficiaries and strong growth businesses.