Finely crafted investments



Market Commentary - May 2018

Posted by Paul Jourdan on 15/Jun/2018

The UK stock market has been rising consistently since the start of April, taking the Mid Cap index back above the 2017 year end highs at the end of May. The big event for every business in the UK in May was the implementation of the General Data Protection Regulations on the 25th. Most companies will (ourselves included) have found this complex, difficult and time consuming. It is to Europe’s credit, however, that legislators are attempting to keep up with the digital revolution, painful as this is. In our discussions about investments we often try to weigh up where we are in the business cycles which affect the stock market. To talk about a single business cycle, as is often done, encourages too simplistic a view to be very useful for stock picking. However, we can guess reasonably that we are in the late stages of a mature bull market. The last time we were here was 2006/7 perhaps, but of course there are profound differences this time around. Whilst enjoying the strong market conditions, we think hard about which companies have the kind of strengths needed to continue to flourish in more difficult times. The single most important characteristic for us is finding companies with leading domain expertise which are able to deploy digital technology effectively in ways which create sustainable advantages in specific industry niches. Fortunately the UK continues to abound with new technology, fresh ideas and ambitious entrepreneurs, and AIM attracts similar companies from overseas too.

TB Amati UK Smaller Companies Fund

The fund rose by 2.8%, which compares to a rise in the benchmark index of 1.2%. The largest contributor to performance this month was Seeing Machines, which also saw the largest share price rise (+47%). This holding has been in the fund for nearly four years, as a very small holding for most of that time until a fund raising last December. Seeing Machines makes driver monitoring systems (DMS) which detect eye movements and can assess what a driver is looking at and whether they are paying attention. Having been in a development phase for a long period, and having commercialised the technology successfully in mining fleet and more recently in commercial vehicles, they are emerging as the world leader in DMS at a point when the global automotive industry is now adopting this technology in the mass market with urgency, pushed along by regulators in Europe and the US. Other strong risers were: Integrafin, the owner of the investment platform Transact; Boohoo; and Accesso, the global ticketing platform. Fallers included: Bushveld and Keywords, which had previously risen strongly; and Dotdigital, which has fallen back over concerns that the new European data protection regulations my cause a hiatus in business growth. New holdings included two stocks held by Amati VCT: AB Dynamics, an automotive engineering business; and LoopUp, the innovative provider of telephone conferencing facilities which avoid the usual annoyances.


Amati AIM VCT returned 4.7%, which compares to a rise in our comparator index of 2.4%. This outperformance came in spite of Faron Pharma announcing that the long awaited Phase III clinical study for its lead drug, Traumakine, had failed to meet its primary end point. This remains a very puzzling outcome for the trial, and the company have raised the possibility that the drug delivery mechanism used in the trial may have caused the dosing of the drug to be too low. One of the additional puzzles here is why the interim data readouts, which are looked at by independent assessors only, didn’t request that the trial be halted part way through on the grounds of futility. Most of the value of the company lay with this drug, so the shares fell by over 80%, and we took the decision to exit the position. On the positive side, a number of the top holdings in the portfolio continued to perform strongly. Most notable amongst these was Frontier Developments, which rose by 33% in anticipation of the launch of its new game, Jurassic World Evolution, whose June launch is timed to coincide with the new Jurassic World film. Other stocks which saw particularly strong share price appreciation include two more recent additions, Fusion Antibodies (+43%) and Byotrol (+52%). Hardide also rose strongly (+42%) on the back of interim results which showed a 43% rise in sales compared to the prior year. We made two new qualifying investments in May: Ixico, which has developed a digital platform to support medical imaging, specialising in neurological diseases; and Block Energy, an oil and gas exploration and production company with operations in Georgia.