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Market Commentary - June 2020

Posted by Anna Macdonald on 09/Jul/2020

The first half of 2020 has been, of course, quite remarkable, yet we feel that we are possibly only in the early chapters of the books that will be written about coronavirus. The pandemic has touched and changed all our lives. As unlocking begins, and a vaccine and cure remains some way off, predicting how the rest of this year will unfold is difficult.

We believe that high levels of unemployment are a real and credible threat, and many cyclical stocks may struggle to make further headway as the economic effects of the crisis become clearer and government support schemes are tapered. However, there are new initiatives being proposed almost daily that could boost different sectors, such as stamp duty holidays, green construction projects, support for the arts and vouchers to boost physical retailers. These aim to be more targeted than furlough schemes that will be wound down by October. Circumstances are still difficult for consumer stocks in particular - loans need to be paid back and business rate holidays won’t last forever, which adds to our concerns that a 'day of reckoning' will arrive for many businesses that cannot trade out of their current situation. We can expect loose liquidity conditions to remain for some time to come as central banks try to remain supportive - and that, twinned with lower levels of capacity, may push prices up and several commentators believe inflation may be an issue into 2021 and beyond.

Whilst so much remains hard to predict, our preference remains to invest in companies that will trade well or consistently through these times. The extent to which technology has enabled so many of us to continue to work through these times, in a way that would have been inconceivable even five years ago, cements in our mind the importance of backing companies that are nimble and responsive to new technological challenges and opportunities.

TB Amati UK Smaller Companies Fund

The TB Amati Smaller Companies fund rose 1.30% in June, ahead of the benchmark which rose 0.97%. AIM continued its strong momentum, up 8% in June. This brings our year to date performance to -14.45%, against a benchmark return of -19.78%.

Companies that have performed well in June include Cake Box, which has recovered all its lost ground by developing new relationships with delivery operators such as Uber Eats and Deliveroo. Gear4Music has traded particularly strongly as their well-invested warehouses and technology platform fulfilled consumer demand for musical equipment. Renalytix bounced following a stream of positive news as it approaches US commercialisation of its AI-enabled diagnostic test, which improves identification, prediction and risk stratification of patients with progressive kidney disease. The Pebble Group achieved $1bn revenues through their Facilis platform well ahead of schedule, leading to a sharp recovery of their share price. The Facilis platform enables small suppliers of promotional goods to reach a wider range of end markets with enterprise level consulting and tech systems.

Air Partner has performed strongly since our purchase in early June. We like its exposure to aircraft chartering in a C19 world and its provision of aviation and security services. We also took part in a liquidity event as a significant holder of Draper Esprit exited their position. Draper Esprit is trading at a significant discount to Net Asset Value and provides us with some rare exposure to consumer, financial and health related technology names.

The detractors from the fund included Morses Club, which was hit as the Wirecard scandal temporarily affected payments in their new credit card division, and in-person collections are still under some pressure owing to C19. Resources stocks also fell over the month on macro-economic concerns.

During the month, new positions were taken in Jet2 holiday operator Dart Group, as part of a fundraising; conventional US gas producer Diversified Gas & Oil; and compliance and governance software specialist Ideagen (an existing holding within the Amati AIM VCT).

Amati AIM VCT

The VCT underperformed the benchmark this month, returning 0.23% against the benchmark which rose 1.42%. Year to date, the VCT is down 3.84% against the benchmark which is down 8.27%.

Velocys was the stand out contributor as its share price rose nearly 85% as Grant Shapps, Secretary of State for Transport, announced government support for their clean jet fuel technology. We have taken some profits.

Medical names performed well - Creo Medical announced a key commercial milestone, together with the simultaneous CE marking of five new devices that they expect to introduce into clinical practice and prepare for commercialisation in the second half of the year.

LoopUp's recovery has continued, with the shares up a further 23%. The audio and video-conference provider should be able to report a rise in sales later this month.

Frontier Developments, our largest individual holding, fell 10% over the month and was the biggest detractor from performance. Bonhill Group continues to struggle as its end markets – events and financial publications – continue to be severely impacted by the crisis. Accesso's recovery has been short-lived. Selling ticketing solutions to closed down amusement parks remains an extremely tough gig.