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Market Commentary - July 2019

Posted by Anna Wilson on 13/Aug/2019

Boris Johnson became the UK’s Prime Minister on 24 July and his ‘do or die’ rhetoric in regards to Brexit has led to further weakness in Sterling. In the first days of Mr Johnson’s premiership, his cabinet and adviser appointments have made a hard Brexit seem a more likely outcome. Whilst the UK has under-performed other markets and looks relatively cheap on many valuation measures, the spectre of further uncertainty is not constructive. On the other hand, we are seeing more corporate activity as overseas and private equity bidders take selective advantage of share price weakness.

TB Amati UK Smaller Companies Fund

The fund was flat against the benchmark which rose 0.08%. This muted performance masks individual stock moves which were much more dramatic, such as the fall of over 50% in LoopUp shares. Their acquisition of Meeting Zone has not been without its problems and management also pointed to lower conference call volumes as their clients saw reduced activity in their end markets. We also saw some weakness in stocks that had performed well this year such as FDM and Keywords Studios.

Quixant issued an update which said that, as previously guided, trading would be more weighted to the second half than usual. This seemed to reassure investors. Learning Technologies Group (“LTG”) issued a strong update and, together with director share buying, this boosted the shares to deliver a return of nearly 17% for the month. The Contents and Services division, where performance had been concerning, showed a good recovery and strong pipeline. We took some profits in LTG after their strong run this year.

We sold out of our holding in AutoTrader after strong performance led to its promotion to the FTSE100 earlier in the year. Additionally, we cut Diversified Gas and Oil from the fund. As well as holding companies with plenty of overseas exposure, we have added to holdings in the UK where we see that valuations are low, cash generation is plentiful and stable, or even counter-cyclical. New positions include Hollywood Bowl, a UK-wide bowling and entertainment operator, and Begbies Traynor, the corporate and personal insolvency specialist.

Amati AIM VCT

The VCT rose 1.09% against the benchmark which rose 0.85%, bringing year to date performance to +16.63% (benchmark +9.72%). There was a strong recovery in accesso when they announced that the board had received bids for several parts of the business. Shares rose over 53%. Other longstanding holdings also recovered well from a prolonged sell-off, including Quixant and Learning Technologies Group (“LTG”). Quixant issued an update which said that, as previously guided, trading would be more weighted to the second half than usual. This seemed to reassure investors. LTG issued a strong update and, together with director share buying, this boosted the shares to deliver a return of nearly 17% for the month. The Contents and Services division, where performance had been concerning, showed a good recovery and strong pipeline.

Unfortunately, there was significant weakness in LoopUp shares, which fell over 50%. Their acquisition of Meeting Zone has not been without its problems and management also pointed to lower conference call volumes as their clients saw reduced activity in their end markets. We participated in three fundraisings in July. Polarean Imaging has a proprietary imaging device for the visualisation of pulmonary function in MRI scans, and came back to the market for a further fund raising, which we supported. A recent Capital Markets Day showed the device can be used to diagnose disease signatures with even greater accuracy than first believed. This means Polarean may be able to partner with pulmonary drug companies to identify patient groups suitable for targeted treatments.

We took a new position in the fund in Velocys, a company that has installed new management, proved its core technology (production of sustainable jet fuel and clean diesel from waste), and signed significant partners in Shell and British Airways. Finally, we bought Sosandar, a rapidly growing online retailer of women’s fashion, to support their next leg of growth.