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Market Commentary - June 2019

Posted by David Stevenson on 19/Jul/2019

June was a month of contrasting fortunes within the UK stock market. Large and mid cap stocks were strongly positive, whilst small cap and AIM stocks saw negative returns to an almost opposite degree. Calendar year to date, this leaves large and mid caps as joint leaders with gains of +13%, whilst small caps and AIM have lagged at +6% and +8% respectively. Explanation of the June pattern may lie in currency movements, with international companies at the top of the UK market expected to benefit from both the translational and transactional benefits of sterling weakness. Meanwhile domestic issues facing the UK, plus a degree of stock market illiquidity, are likely to be the factors influencing smaller companies. An indication of the tough conditions facing the UK economy was provided by the Purchasing Managers’ Index (PMI) data for June, which showed weakening activity across each of the manufacturing, construction and service sectors.

TB Amati UK Smaller Companies Fund

The fund rose 0.2% in the month compared to a benchmark decline of 0.6%. The most significant contribution to performance came from building maintenance provider Premier Technical Services, which almost trebled in value after receiving a recommended cash offer from global financial group Macquarie.

Although the shares had suffered more recently from corporate governance issues, the bid reflects the underlying robustness of the company’s end markets. Computer gaming services providers, Keywordsand Sumo, were also strong performers. Both companies continue to enjoy strong demand from underlying growth in the global video games market. Business data publishing and analytics company, GlobalData, and digital learning and talent solutions provider, Learning Technology, also showed strong gains, continuing their recent share price momentum.

The biggest detractor from performance was adhesives manufacturer, Scapa, which fell significantly after the termination of a material healthcare contract with Convatec. There was some recovery in the shares, however, after the outgoing CEO reacted to events and decided to reverse an earlier decision to step down. During the month, positions in Chesnara, Seeing Machines and Sabre Insurance were exited. New investments were made in the IPO of foreign exchange specialist Argentex, a fast growing provider of currency services to corporates; and inFocusrite, a hardware and software supplier to the global music industry, which has a strong market share.

Amati AIM VCT

Against a benchmark fall of 3.5% for the month, the VCT dropped 1.6%. The biggest detractor from performance was healthcare revenue integrity software provider, Craneware, which reacted to a disappointing trading update. Current year growth has been impacted by the launch of three new products which have seen a slower than anticipated uptake.

Management remain confident in the group’s pipeline and renewal levels, but the highly rated shares suffered a sharp correction. Georgian oil and gas explorer, Block Energy, gave back some of its recent outperformance on no underlying news. In early July, however, the shares rebounded on the announcement of an oil storage leasing agreement which will allow the commencement of production from the key West Rustavi field.

Identity data intelligence specialist, GB Group, and video game developer and publisher, Frontier Developments, also gave back some recent outperformance despite providing positive trading news in the month. The biggest contributor to performance was building maintenance provider Premier Technical Services, which trebled in value after receiving a recommended cash offer from global financial group Macquarie. Although the shares had suffered more recently from corporate governance issues, the bid reflects the underlying robustness of the company’s end markets. Compliance information management software provider, Ideagen, and digital learning and talent solutions provider, Learning Technology, also enjoyed strong gains, without news flow.