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Market Commentary - November 2019

Posted by David Stevenson on 10/Dec/2019

November saw a continuation of the pattern which has been a feature of the UK stock market for the last six months, namely an outperformance by mid cap companies. Against a wider market rise of 2% for the month, and 6% over the last six months, mid cap companies have gained 4% and 12% respectively. The near term reason for this is likely to be opinion polls suggesting a Conservative majority, seen as a positive outcome for capital markets with sterling strength being another indicator. The medium term outperformance, however, is more likely to be a matter of investment fundamentals, with domestically exposed UK companies having been de-rated in the aftermath of the Brexit referendum to levels which eventually enticed buyers. This rebound has not extended to small cap companies or AIM stocks, however, which are up 1% and down 3% respectively over the last six months. That underperformance is likely to reflect lower trading liquidity, but also high ratings amongst some of the larger AIM companies which didn’t fit the value focus. Whilst the expectation is that the UK stock market will make further progress in the event of a Conservative victory, the re-rating of mid caps looks to have discounted some of this already, and indeed has created vulnerability to any different outcome. Areas of the market beneath mid caps, where smaller companies have lagged so significantly, may start to look more appealing if the level of uncertainty reduces.

TB Amati UK Smaller Companies Fund

The fund gained 6.0% in the month, compared to a benchmark rise of 4.2%. Significant contributions came from a diverse range of holdings. Asian oil & gas producer, Jadestone, responded well to the acquisition of a New Zealand asset; technology recruitment specialist, FDM, rebounded sharply after a period of sustained weakness; electronic component manufacturer and distributor, discoverIE, continued its re-rating on the back of robust trading and a material acquisition; and scientific instrument manufacturer, Judges Scientific, continued its strong momentum on no news. The main detractors from performance were animal health products specialist, Eco Animal, which announced that trading in China continues to be impacted by African Swine Fever; and B2B media business, Bonhill, which has experienced difficult market conditions in the UK and Hong Kong. During the month a new position was taken in housebuilder Redrow, whilst asset manager Tatton was sold.

Amati AIM VCT

The fund gained 5.1% in the month against a benchmark rise of 3.9%. Significant contributions included video gaming services provider, Keywords, which recovered some of its recent weakness and responded well to a capital markets day investor presentation; governance, risk & compliance software provider, Ideagen, which issued a positive trading update, highlighting continued progress towards recurring revenues, which now account for 74% of total sales; video game publisher, Frontier Developments, which announced the successful release on PC of its Planet Zoo title, which has achieved global number one bestseller status on Steam; and identity software specialist, GB Group, which announced positive results. The major detractors from performance were Georgian oil & gas explorer, Block Energy, which declined on no news, and drug developer, Evgen Pharma, which announced disappointing trial results for its neurological application product. A position in the escape room operator, Escape Hunt, was sold during the month.