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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£202.7m

Data as at 31/12/2021.

Fund Managers

Neil Veitch
Global & UK Investment Director
15
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
16
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.

Smurfit Kappa Group5.0
Synthomer4.8
Alpha FMC4.4
CRH4.2
IMI 2.9
Norcros5.0
Entain4.6
Tesco 3.6
Marks & Spencer3.3
Ryanair 2.4
Jadestone Energy4.6
Pantheon Resources2.2
Energean1.7
Longboat Energy1.3
Savannah Energy1.2
Micron Technology4.7
Creo Medical Group3.0
Team171.5
ActiveOps1.3
Diurnal Group0.9
DCC3.2
GlaxoSmithKline2.9
Drax Group2.2
Smith & Nephew1.9
Lloyds Banking Group 3.9
Prudential3.2
OSB Group2.0
CMC Markets1.2

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 (%)

Smurfit Kappa Group5.0
Norcros5.0
Synthomer4.8
Micron Technology4.7
Jadestone Energy4.6
Entain4.6
Alpha FMC4.4
CRH4.2
Lloyds Banking Group 3.9
Tesco 3.6
Rest of Portfolio55.2

Source: SVM, as at 31/12/2021

Sector Exposure (%)

Industrials22.2
Materials17.5
Consumer Discretionary14.2
Energy12.3
Financials10.2
Health Care9.6
Consumer Staples6.2
Information Technology4.4
Communication Services2.5
Utilities2.2
Real Estate1.0

Source: SVM, as at 31/12/2021

Size Analysis (%)

Large Cap41.0
Med/Mid 25024.5
Small/Small Cap34.5

Source: SVM, as at 31/12/2021

Show piebar chart

This Month's Featured Stock

Synthomer

Synthomer is a diversified chemicals company.  The group manufactures speciality polymers for a wide range of industries.

As mentioned in the fund commentary, Synthomer was impacted during the month by a broker note raising concerns about the outlook for the synthetic rubber glove market. Synthomer is a global leader in the manufacture of nitrile butadiene reflex (NBR), the key raw material used in the production of nitrile rubber gloves.  This industry has been in structural growth for many years, driven by increasing global hygiene standards and the substitution of traditional rubber gloves, which are not suitable for those with latex allergies. A Covid-induced spike in demand led to surge in unit margins, helping Synthomer achieve super-normal margins over the past 18 months.  This will inevitably normalise over the upcoming year, an outcome that is widely anticipated, but we believe that the longer-term growth characteristics of the industry remain unchanged.

These Covid-related benefits have distorted Synthomer’s earnings profile. Consensus analyst estimates now expect operating profits in 2022 to be c.25% below those achieved in 2021. Lazier investors who rely heavily on earnings momentum as a screen will take a negative view on the stock.  In our opinion, this is a mistake.  The additional cash generated over the past 18 months has allowed management to accelerate the group’s M&A strategy.  November’s acquisition of Eastman’s Adhesive Resins helps diversify Synthomer from both a geographic and end-market perspective.

Trading on an estimated 2022 PE of c.8x, we believe Synthomer is significantly undervalued. The business has been transformed in recent years to become a truly global chemicals company exposed to a range of industries with attractive demand profiles.  Having attracted private equity interest in the past, it would be no surprise if it is in the crosshairs again as public markets fail to appreciate the business’ intrinsic value.

Performance

Performance (%)

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FundIndex
1 month4.94.7
2021 YTD24.318.7
1 year24.318.7
3 years50.224.2
5 years51.926.8
Since launch*803.5182.8
Source: Lipper, as at 31/12/2021, 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
675.50p
-0.40%
Class B
780.00p
-0.40%

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

Source: State Street, as at 14/01/2022.

Commentary

Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting restrictions in-place and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and the FTSE All-Share reached its highest level since before the pandemic. The fund returned 4.9% in the month versus the MSCI UK that returned 4.7%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclicals. Travel related stocks bounced strongly as confidence grew that the worst of any Covid disruption was behind us. Ryanair, Easyjet and Menzies all rose. Jadestone Energy jumped as the company announced it had achieved its year-end production target. Sentiment towards the shares was boosted further by the passing of legislation in New Zealand that will likely facilitate the completion of the much-delayed acquisition of assets from OMV. Pantheon moved higher as it successfully completed an oversubscribed financing that will enable to complete its very promising drilling campaign.

Savannah Energy gained as the shares restarted trading post the announcement that it was acquiring a package of upstream and midstream assets in Chad and Cameroon from Exxon and Petronas. The transaction more than doubles the group’s reserves and generates significant cashflow at prevailing energy prices, enabling a quick paydown of the associated debt. The tail-risks of operating in Africa are material but the upside is significant, and the deal highlights the opportunities for smaller energy companies as the ‘majors’ navigate the energy transition. Energy demand will continue to grow and barring the emergence of a new scalable resource such as nuclear fusion, hydrocarbons will remain an integral part of the solution for the foreseeable future.  Micron climbed after results came in ahead of expectations and management expressed confidence in the outlook for memory pricing.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated the company is more diversified than it has been in the past and the valuation attractive.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/12/2021.

Financial markets have spent the last eighteen months looking over their shoulder for new and potentially more dangerous Covid variants. The arrival of the more transmissible Omicron in late November initially looked like it may herald what many had feared. Governments responded by putting restrictions in-place and activity sagged. Yet despite soaring infection rates and a pick-up in hospitalisations, deaths have remained low. Investors interpreted this as the ‘market clearing event’ that facilitates the transition to a more normalised environment. Equity markets rebounded and the FTSE All-Share reached its highest level since before the pandemic. The fund returned 4.9% in the month versus the MSCI UK that returned 4.7%

The minutes of the December Federal Reserve Board showed participants believed that higher inflation and a tight labour market could necessitate lifting short-term rates “sooner or at a faster pace than participants had earlier anticipated.” Officials also now expect to end the expansion of the Fed’s balance sheet in March. The practical impact of these moves is limited but the ‘signalling’ effect is more significant and has driven a sharp rotation out of ‘growth’ stocks into ‘value’. Despite the initial intra market volatility, monetary conditions are not about to dramatically tighten. Investors will, however, need to navigate the transition from a liquidity driven bull market to one driven by earnings. Volatility has increased and the recent sector rotation will likely continue. But with a strong underlying global economy and significantly negative real interest rates the equity bull market is intact.

The emerging consensus that Omicron, while more transmissible, is considerably less virulent positively impacted numerous sectors. Increased confidence in the economic outlook drove a recovery in cyclicals. Travel related stocks bounced strongly as confidence grew that the worst of any Covid disruption was behind us. Ryanair, Easyjet and Menzies all rose. Jadestone Energy jumped as the company announced it had achieved its year-end production target. Sentiment towards the shares was boosted further by the passing of legislation in New Zealand that will likely facilitate the completion of the much-delayed acquisition of assets from OMV. Pantheon moved higher as it successfully completed an oversubscribed financing that will enable to complete its very promising drilling campaign.

Savannah Energy gained as the shares restarted trading post the announcement that it was acquiring a package of upstream and midstream assets in Chad and Cameroon from Exxon and Petronas. The transaction more than doubles the group’s reserves and generates significant cashflow at prevailing energy prices, enabling a quick paydown of the associated debt. The tail-risks of operating in Africa are material but the upside is significant, and the deal highlights the opportunities for smaller energy companies as the ‘majors’ navigate the energy transition. Energy demand will continue to grow and barring the emergence of a new scalable resource such as nuclear fusion, hydrocarbons will remain an integral part of the solution for the foreseeable future.  Micron climbed after results came in ahead of expectations and management expressed confidence in the outlook for memory pricing.

Synthomer was the largest detractor from performance. The shares slumped as brokers raised concerns over the outlook for the synthetic rubber glove market. We believe a more regular market is already factored into market expectations but unfortunately this will only become apparent with time. Even if conditions prove to be weaker than anticipated the company is more diversified than it has been in the past and the valuation attractive.

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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