Dr Paul Jourdan - CEODr Paul Jourdan co-founded Amati Global Investors following the management buyout of Noble Fund Managers from Noble Group in January 2010, having joined Noble in 2007 as Head of Equities. His fund management career began in 1998 with Stewart Ivory, where he gained experience in UK, emerging market, and global equities. In 2000, Stewart Ivory was taken over by First State and Paul became manager of what is now TB Amati UK Smaller Companies Fund. In 2004, he was appointed Head of UK Equities at First State. In early 2005, he launched Amati VCT plc and he also manages Amati VCT 2 after the investment management contract moved to Amati Global Investors in 2010 (In 2018 Amati VCT merged into Amati VCT 2 which was then renamed Amati AIM VCT). Prior to 1998, Paul worked as a professional violinist, including a four-year period with the City of Birmingham Symphony Orchestra. He serves as a trustee of Clean Trade, a charity registered in England and Wales.
Market Commentary - October 2020
Posted by Paul Jourdan on 17/Nov/2020
During October the headlines were dominated once again by COVID-19, with a few pauses to mention the US presidential election and the ongoing Brexit trade deal negotiations. Not surprisingly, in this environment markets were somewhat directionless, but stocks which were negatively impacted by lockdowns were under pressure, whilst those which have benefited from them were favoured. By the end of the month the much discussed performance gap between “value” and “growth” stocks reached levels of divergence not seen perhaps since the dotcom boom.
Behind the scenes in the medical world, there has been frenetic activity by hundreds of corporate bodies around the world to develop the best means of treating, testing and vaccinating to lessen the devastation being caused by the virus. The competition to succeed in each of these areas is ferocious. Testing has broadened from the much discussed PCR based tests to Lateral Flow tests (similar to a pregnancy test) amongst other methods, which will be easier to administer, but are also likely to be less accurate. For decision makers, the pressure for speed combined with the sheer excess of information and competition for attention makes it hard not to rely simply on those closest at hand, and therefore there is little surprise that accusations of cronyism arise. The prize is enormous, as companies compete for the attention of governments. Equally, huge efforts have gone into finding treatments and vaccines, and here it is easy for smaller UK companies to get lost in the noise created by larger US competitors with the backing of the US authorities and programmes such as the Warp Speed Initiative. Chloroquine and Hydroxychloroquine came to prominence in March in the US following comments from Donald Trump. They were later shown to be ineffective. Similarly Remdesivir, was authorised very quickly by the FDA for emergency use to treat COVID-19, and millions of doses have been bought and used, including in the UK. However, studies have failed to show any impact on reducing mortality rate, and whilst it was shown to have an effect on shortening time to hospital discharge in patients with severe pneumonia, there was conflicting data in patients without oxygen deficiency. Dexamethasone, a generic steroid, came to prominence initially through UK research, and provides a much needed low cost therapy showing a reduction in day-28 mortality rates. The data around this drug is also incomplete as noted by Pauline Vetter et al. in “Dexamethasone and remdesivir: finding method in the COVID-19 madness”, The Lancet Microbe, 23/10/20. This leaves the drug to which Amati funds feel close, Synairgen’s SNG-001, which is an inhaled formulation of Interferon beta-1a, which we hope will find prominence. Both Amati AIM VCT and the TB Amati UK Smaller Companies Fund have supported this company.
The Phase II trial of the SNG-001 drug showed it to be amongst the most promising treatments for COVID-19, albeit it still needs a larger Phase III study. Had this been a US made drug we suspect it would have been shouted from the rooftops and probably used widely already. It can be used in the UK on a named patient basis. I know that if I, or one of my family were to contract COVID-19 with any severity, I would want to it to be available.
TB Amati UK Smaller Companies Fund
The fund fell by 0.4% during October, which compares to a rise of 0.9% for the benchmark index. Positive contributors included video games developers Sumo Group and Codemasters, which benefit from people spending more time at home, but interestingly also Jet2, provider of European holidays for UK travellers, which requires solutions to be found to end lockdowns, and OneSavings Bank, which benefits if the economy proves more resilient than worst fears suggest. On the negative side Centamin, a gold mining company, had operational setbacks at its Sukari mine in Egypt, which resulted in the near term production forecasts being downgraded, and Argentex, provider of FX treasury services to corporates, had a slower second half than expected, largely due to lack of larger FX deals being required by private equity customers, who have been making fewer new investments due to travel restrictions.
We made a new investment in Kape Technologies, provider of VPNs (virtual private networks) to consumers wanting digital security and privacy, taking part in a placing to accelerate the payment of deferred consideration on a recent acquisition and to allow for future acquisitions. We also added to holdings in Renalytix, Argentex, Codemasters and Frontier Developments, whilst holdings we sold included Clinigen, Diversified Gas and Oil, Genel Energy, and Integrafin.
Amati AIM VCT
The VCT rose by 3.9% against the benchmark fall of 0.7%. This brings year to date performance to 18.3% against the benchmark at -1.1%. Polarean was once again the largest contributor to performance, rising 68% during the month to become the largest holding in the portfolio. The company has now filed its lung imaging device for approval in the US under an NDA (new drug application), as the hyperpolarised xenon gas used is treated as a drug. Other positive contributors were AB Dynamics and Diaceutics. The biggest fallers were Diurnal and Frontier Developments, which were giving back some of the prior month’s strong gains.
Polarean is now one of the VCT’s largest holdings after returning nearly 16% in September, and has risen nearly threefold since their raise on 12th March. Fusion Antibodies rose 94% over the month, after announcing they had isolated Covid antibodies.
We made a new qualifying investment in Verici DX, a company which spun out of Renalytix AI, also an AIM quoted stock. Verici DX is commercialising two diagnostic tests which are designed to improve the delivery and success rate of kidney transplants. One test, Clarava, is used pre-transplant as a prognostic for the risk of early rejection within the first 6 months of the operation. The other, Tuteva, will be used post-transplant, as a real time diagnostic for detection of subclinical and clinical rejection. The technology is licensed from Mount Sinai Hospital in New York. Due to high demand for this IPO we only managed to make a small investment in the company.