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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£107.1m

Data as at 31/05/2020.

Fund Managers

Neil Veitch
Global & UK Investment Director
14
Years at SVM
23
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
13
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.

Synthomer4.5
Smurfit Kappa Group3.9
CRH3.9
Balfour Beatty3.6
Informa2.8
DCC6.3
National Grid 4.3
GlaxoSmithKline4.2
Roche Holdings3.9
AstraZeneca 3.2
Tesco 6.1
GVC Holdings 4.1
Norcros3.9
Ryanair 3.6
JDE Peet's1.5
Prudential4.8
Onesavings Bank2.1
Lloyds Banking Group 1.5
RSA Insurance Group1.5
M&G1.2
Jadestone Energy5.0
Energean2.0
Pantheon Resources1.5
Jersey Oil & Gas0.7
Savannah Energy0.5
SDL 2.7
Creo Medical Group2.5
Micron Technology1.8
Team171.4
Simec Atlantis Energy0.2

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

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 IMA sector.

Top 10 Holdings (%)

DCC6.3
Tesco 6.1
Jadestone Energy5.0
Prudential4.8
Synthomer4.5
National Grid 4.3
GlaxoSmithKline4.2
GVC Holdings 4.1
Smurfit Kappa Group3.9
Roche Holdings3.9
Rest of Portfolio52.9

Source: SVM, as at 31/05/2020

Sector Exposure (%)

Oil & Gas10.3
Basic Materials4.5
Industrials24.1
Consumer Goods8.1
Health Care13.9
Consumer Services12.9
Utilities4.6
Financials14.2
Technology4.6

Source: SVM, as at 31/05/2020

Size Analysis (%)

Large Cap56.3
Med/Mid 25015.2
Small/Small Cap28.5

Source: SVM, as at 31/05/2020

Show piebar chart

This Month's Featured Stock

Marks and Spencer

Marks and Spencer (M&S), one of the UK’s most venerable brands, is a retailer of food and clothing. The group operates over 1,000 stores in the UK and has a mixture of owned and franchised stores in over 60 international markets.

Having such a prominent position in the UK for over 100 years, the problems M&S has faced in recent years have been well documented. Although the group remains the UK’s leading clothing retailer, it has seen its market share eroded by the rise of online fast-fashion brands and the success of Primark on the high street. Self-inflicted wounds including a botched digital transformation programme and high levels of management turnover have not helped. Prior to the COVID lockdown, however, there were some tentative signs of improvement. Like-for-like sales trends in clothing had begun to improve, albeit against weak comparatives. Management are seeking to use the crisis to help accelerate change and are reducing SKU count and consolidating its supplier base. The food business, by contrast, has shown solid performance in recent years and has held up well during the lockdown. The group’s joint venture with Ocado, launching in September, will markedly accelerate growth in the online delivery channel.

M&S has sufficient balance sheet strength to manage through the current crisis. The group has over £1bn in liquidity, and during the first couple of months has seen cash performance outperform initial management expectations. While recognising the challenges facing M&S, the current share price reflects an overly negative outlook. The strength of the group’s food business, opportunity for the Ocado JV, and potential for improvement in clothing, could all provide catalysts for the shares to outperform.

Performance

Performance (%)

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FundIndex
1 month1.72.9
2020 YTD-26.9-18.4
1 year-9.9-9.5
3 years-11.4-7.5
5 years9.47.4
Since launch*477.7156.1
Source: Lipper, as at 31/05/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges. *Fund Launch 20/03/2000.
FundIndexDifference
2020-24.8-19.1-5.7
2019-0.43.0-3.4
20188.03.1+4.9
201714.718.4-3.7
20168.0-1.7+9.7
Source: Lipper, as at 31/05/2020, Class B, GBP, UK net tax with net income reinvested and no initial charges.

Prices

Class A
442.90p
1.21%
Class B
505.50p
1.22%

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

Source: State Street, as at 03/07/2020.

Commentary

Equities made further gains in May. Markets continue to be acutely sensitive to news flow on the spread of the disease. Confidence is fragile but progress remains positive. Those countries that have relaxed restrictions have yet to see a meaningful second wave. There will, of course, be setbacks along the way but we are more optimistic than we were six to eight weeks ago. Economic data continues to be heavily distorted by the nature of the lockdown. The severity of the slowdown has considerably reduced the utility of much of the higher frequency economic data that investors often use to identify inflection points. Nonetheless, here as well there are some signs of encouragement. The fund rose 1.7% versus the FTSE All-Share that gained 3.4%.

The most notable feature of returns over the month was the substantial outperformance of ‘growth’ versus ‘value’. As we have commented before this is not a surprise given the current market backdrop. Economic activity has collapsed and central banks have committed to hold interest rates at abnormally low levels for the foreseeable future. Liquidity has exploded with money supply ballooning. This creates almost the perfect backdrop for ‘long duration’ growth stocks. Indeed, many of this year’s strongest performers are companies seeking to benefit from ‘disruptive’ technologies whose economic payback will not be seen for many years. We aren’t averse to ‘growth’, nor oblivious to the risk of an outdated world view, but seek to ensure that any reward is commensurate with the risk taken. In a paradigm characterised by a central bank backstop the extent to which valuation matters, however, is a legitimate debate. The pattern reversed slightly towards the end of the month as some tentative improvements in the economic data began to emerge.

DCC was the largest positive contributor to the fund’s performance. The company announced full-year results that highlighted the resilience of its business model, its financial strength, and the acquisition opportunities that might arise as a consequence of the pandemic. It also raised its dividend at a time when many payouts are under pressure. Global cyclicals such as TI Fluids, Synthomer and Ryanair performed well. The fund’s energy holdings rose as the oil price continued to recover as demand rebounded. Despite the lockdown we are in active dialogue with our portfolio holdings as well as many other businesses. Considerable uncertainty is the overarching feature of most of these conversations. Relative to expectations at the outset of the crisis, however, the outcome for most companies has been better than anticipated. Business development is challenging but many see the crisis as an opportunity to right-size their operations. This has implications for employment and aggregate final demand, but hopefully will result in a more productive economy over the longer term.

Domestic cyclicals, Forterra and Norcros, were the two largest negative contributors to performance. Both stocks slumped as investors fretted over the shape of the economic recovery and how quickly construction activity will rebound.

New positions were initiated in RSA, AB Foods, JD Peet and Legal & General Plc. The fund participated in a fund raising for Dart Group. The holding in Ryanair was increased.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/05/2020.

Equities made further gains in May. Markets continue to be acutely sensitive to news flow on the spread of the disease. Confidence is fragile but progress remains positive. Those countries that have relaxed restrictions have yet to see a meaningful second wave. There will, of course, be setbacks along the way but we are more optimistic than we were six to eight weeks ago. Economic data continues to be heavily distorted by the nature of the lockdown. The severity of the slowdown has considerably reduced the utility of much of the higher frequency economic data that investors often use to identify inflection points. Nonetheless, here as well there are some signs of encouragement. The fund rose 1.7% versus the FTSE All-Share that gained 3.4%.

The most notable feature of returns over the month was the substantial outperformance of ‘growth’ versus ‘value’. As we have commented before this is not a surprise given the current market backdrop. Economic activity has collapsed and central banks have committed to hold interest rates at abnormally low levels for the foreseeable future. Liquidity has exploded with money supply ballooning. This creates almost the perfect backdrop for ‘long duration’ growth stocks. Indeed, many of this year’s strongest performers are companies seeking to benefit from ‘disruptive’ technologies whose economic payback will not be seen for many years. We aren’t averse to ‘growth’, nor oblivious to the risk of an outdated world view, but seek to ensure that any reward is commensurate with the risk taken. In a paradigm characterised by a central bank backstop the extent to which valuation matters, however, is a legitimate debate. The pattern reversed slightly towards the end of the month as some tentative improvements in the economic data began to emerge.

DCC was the largest positive contributor to the fund’s performance. The company announced full-year results that highlighted the resilience of its business model, its financial strength, and the acquisition opportunities that might arise as a consequence of the pandemic. It also raised its dividend at a time when many payouts are under pressure. Global cyclicals such as TI Fluids, Synthomer and Ryanair performed well. The fund’s energy holdings rose as the oil price continued to recover as demand rebounded. Despite the lockdown we are in active dialogue with our portfolio holdings as well as many other businesses. Considerable uncertainty is the overarching feature of most of these conversations. Relative to expectations at the outset of the crisis, however, the outcome for most companies has been better than anticipated. Business development is challenging but many see the crisis as an opportunity to right-size their operations. This has implications for employment and aggregate final demand, but hopefully will result in a more productive economy over the longer term.

Domestic cyclicals, Forterra and Norcros, were the two largest negative contributors to performance. Both stocks slumped as investors fretted over the shape of the economic recovery and how quickly construction activity will rebound.

New positions were initiated in RSA, AB Foods, JD Peet and Legal & General Plc. The fund participated in a fund raising for Dart Group. The holding in Ryanair was increased.

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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