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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£193.2m

Data as at 31/05/2022.

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.

Synthomer4.6
Alpha FMC4.4
Smurfit Kappa Group4.2
CRH3.7
IMI 3.5
Norcros4.7
Entain4.2
Tesco 3.4
Marks & Spencer2.6
Ryanair 2.4
Jadestone Energy6.2
Energean3.2
Pantheon Resources2.5
Savannah Energy2.3
Jersey Oil & Gas1.2
Lloyds Banking Group 3.8
Legal & General2.9
Prudential2.7
OSB Group1.9
CMC Markets1.5
GSK3.7
DCC3.2
Smith & Nephew2.0
Micron Technology4.2
Creo Medical Group2.2
ActiveOps0.5
Team170.5
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 Energy6.2
Norcros4.7
Synthomer4.6
Alpha FMC4.4
Smurfit Kappa Group4.2
Micron Technology4.2
Entain4.2
Lloyds Banking Group 3.8
CRH3.7
GSK3.7
Rest of Portfolio56.4

Source: SVM, as at 31/05/2022

Sector Exposure (%)

Industrials31.0
Consumer Discretionary17.4
Financials17.1
Energy17.1
Health Care8.2
Consumer Staples5.1
Information Technology4.7
Materials3.7
Real Estate1.0
Communication Services0.4

Source: SVM, as at 31/05/2022

Size Analysis (%)

Large Cap41.3
Med/Mid 25026.2
Small/Small Cap32.5

Source: SVM, as at 31/05/2022

Show piebar chart

This Month's Featured Stock

Marks & 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.

M&S’s recently released full-year results provided clear evidence of the improvements made across the business.  Clothing & Home (C&H) sales exceeded pre-pandemic levels, driven by a recovery of in-store sales as customers were less impacted by Covid restrictions.  The group have streamlined C&H options by 20% over in recent years and focused on a more contemporary style.  This has helped improve value perception among customers and led to a reduction in product discounting. Online sales proved resilient against a tough, Covid-boosted, comparator.  Having added a number of third-party brands to its online offering and improved its own infrastructure, M&S has built a strong platform for future growth.   The group’s food division had a stellar year, with revenue growth of 8% despite both travel and hospitality channels still being affected by the pandemic.

M&S continues to make headway in reshaping its legacy store estate, although it still has some way to go in shrinking from 247 full-line stores to the targeted 180.  Like all retailers, M&S will face challenges in managing inflationary pressures over the upcoming year.   We feel, though, that management can still deploy a significant amount of self-help measures to support earnings and that these issues are more than adequately reflected in the current stock price.  Currently trading on an estimated March 2023 PE of less than 9x, the revitalisation of the M&S brand fails to be underappreciated.

Performance

Performance (%)

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FundIndex
1 month1.20.9
2022 YTD-5.63.1
1 year-2.910.0
3 years33.117.0
5 years30.920.9
Since launch*753.3191.6
Source: Lipper, as at 31/05/2022, 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
568.70p
-2.95%
Class B
658.80p
-2.96%

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

Source: State Street, as at 28/06/2022.

Commentary

The outlook for inflation and by extension interest rates once again determined market direction. Equities sold off early in the month but rallied post the release of the minutes of the latest Federal Reserve Board meeting. Investors were comforted that members of the FOMC appeared to realise the nuances around the inflation outlook and that the Fed was not stuck on autopilot. The positive sentiment was reinforced by strong earnings from US retailers Dollar Tree and Macy’s, which reassured investors post disappointing updates from Target and Walmart. The pattern of consumption maybe changing but overall expenditure currently remains robust. The fund returned 1.2% versus the MSCI UK index that returned 0.9%.

The economic outlook remains clouded. The conflict in Ukraine is ongoing and continues to put upward pressure on commodities, most notably wheat and oil. China is zealously pursuing its zero Covid policy with an obvious impact on economic growth. Chinese retail sales fell 11% in April. Elsewhere, both consumer and business confidence have sharply deteriorated. Despite these headwinds, earnings expectations are holding up reasonably well. This has been interpreted negatively in some quarters as many investors believe we need to witness more significant downwards revisions for the market to bottom. Equities may remain choppy over summer until the outlook for earnings becomes clearer, but should the economy prove more resilient than the current negative consensus then the upside in some sectors and stocks could be significant. Interestingly, in the last month corporate executives in the US bought shares in their companies at the highest rate since the financial crisis.

Marks & Spencer rallied to post a reassuring update that demonstrated the resilience of their model. Clothing and home sales exceed 2019 levels as consumers faced less restriction and the food business sustained its recent strong performance growing revenue 8%. Management haven’t seen a slowdown in the business but are prudently expecting a weaker second half of the year and shaved forecasts slightly. Investors looked through the short-term downgrades and the shares bounced strongly. With unemployment low and wage growth robust we believe the risk of the much-vaunted consumer crisis is overdone.

Our faith in the resilience of the consumer was well established before the Chancellor unveiled his latest package of support. As such the economic merits of the additional help for the consumer are debatable but the political reality was clear. The case for partially funding the largesse via a windfall tax on energy companies, however, is misguided and short sighted. The UK cannot, and should not, try to compete with low tax jurisdictions such as Ireland. But rather should focus on providing a transparent and predictable fiscal regime, especially for long term capital projects where initial financial commitments are large. By introducing a windfall tax, the government has obscured the market’s price signals and, in all likelihood, exacerbated the long-term supply situation.

Serco rose as it increased its underlying profit guidance by 15%. The strength of its new business pipeline means operating profit will now be close to 2021’s level despite the ending of the UK Test & trace and AWE contracts. Homeserve jumped as the company announced it was recommending a takeover of the business as £12 a share. Reach declined as the economic uncertainty weighed on advertising spend.

A new position was started in JD Sports post the weakness in the share price.

Commentary by
Neil Veitch
Global & UK Investment Director
Craig Jeruzal
UK Investment Analyst
As at 31/05/2022.

The outlook for inflation and by extension interest rates once again determined market direction. Equities sold off early in the month but rallied post the release of the minutes of the latest Federal Reserve Board meeting. Investors were comforted that members of the FOMC appeared to realise the nuances around the inflation outlook and that the Fed was not stuck on autopilot. The positive sentiment was reinforced by strong earnings from US retailers Dollar Tree and Macy’s, which reassured investors post disappointing updates from Target and Walmart. The pattern of consumption maybe changing but overall expenditure currently remains robust. The fund returned 1.2% versus the MSCI UK index that returned 0.9%.

The economic outlook remains clouded. The conflict in Ukraine is ongoing and continues to put upward pressure on commodities, most notably wheat and oil. China is zealously pursuing its zero Covid policy with an obvious impact on economic growth. Chinese retail sales fell 11% in April. Elsewhere, both consumer and business confidence have sharply deteriorated. Despite these headwinds, earnings expectations are holding up reasonably well. This has been interpreted negatively in some quarters as many investors believe we need to witness more significant downwards revisions for the market to bottom. Equities may remain choppy over summer until the outlook for earnings becomes clearer, but should the economy prove more resilient than the current negative consensus then the upside in some sectors and stocks could be significant. Interestingly, in the last month corporate executives in the US bought shares in their companies at the highest rate since the financial crisis.

Marks & Spencer rallied to post a reassuring update that demonstrated the resilience of their model. Clothing and home sales exceed 2019 levels as consumers faced less restriction and the food business sustained its recent strong performance growing revenue 8%. Management haven’t seen a slowdown in the business but are prudently expecting a weaker second half of the year and shaved forecasts slightly. Investors looked through the short-term downgrades and the shares bounced strongly. With unemployment low and wage growth robust we believe the risk of the much-vaunted consumer crisis is overdone.

Our faith in the resilience of the consumer was well established before the Chancellor unveiled his latest package of support. As such the economic merits of the additional help for the consumer are debatable but the political reality was clear. The case for partially funding the largesse via a windfall tax on energy companies, however, is misguided and short sighted. The UK cannot, and should not, try to compete with low tax jurisdictions such as Ireland. But rather should focus on providing a transparent and predictable fiscal regime, especially for long term capital projects where initial financial commitments are large. By introducing a windfall tax, the government has obscured the market’s price signals and, in all likelihood, exacerbated the long-term supply situation.

Serco rose as it increased its underlying profit guidance by 15%. The strength of its new business pipeline means operating profit will now be close to 2021’s level despite the ending of the UK Test & trace and AWE contracts. Homeserve jumped as the company announced it was recommending a takeover of the business as £12 a share. Reach declined as the economic uncertainty weighed on advertising spend.

A new position was started in JD Sports post the weakness in the share price.

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.

Dealing - Funds
0345 066 1110

Professional Adviser Helpline
0800 0199 110

Literature Requests
0800 0199 440

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