Finely crafted investments



Market Commentary - May 2020

Posted by David Stevenson on 12/Jun/2020

May continued the UK market’s rebound from its mid-March low point. This involved a broad based rally, but leadership was mainly from cyclical sectors as investors chose to focus on recovery potential. Areas such as retail, leisure, media and capital goods dominated, with some individual stocks managing to regain their previous highs. Another feature was that AIM stocks (+8.1%) significantly outperformed the main UK market (+3.3%). This is a pattern which has been most notable over the last three months, when AIM has been the only segment of the UK market to generate positive gains. An important contributor to this has been the sector weights within AIM, where healthcare and technology account for around 30% of the total. Stocks in these areas - involving IT hardware/software, video gaming, and drug and medical device development – are showing evidence of being key areas of economic activity as the UK emerges from the crisis. On a more cautionary note, daily trading volumes in the market appear to be heavily driven by private investors, bringing the danger of stretched valuations in the near term. Recovery from here will be a marathon not a sprint, with many speed bumps along the way.

TB Amati UK Smaller Companies Fund

Whilst the fund carries exposure to cyclical recovery within the portfolio, its structural growth bias saw it lag the market rally, gaining 3.1% compared to a benchmark rise of 4.3%. Contributors to performance came from a range of sectors. Specialist lenders, Intermediate Capital and One Savings Bank, joined in the cyclical momentum, whilst drug product and services specialist Clinigen, and video games publisher Frontier Developments, were significant healthcare and technology outperformers. Insolvency litigation specialist Manolete, and patent translation services provider RWS, also contributed. Each of these companies has recently provided a robust trading update. Detractors from performance included housebuilder Countryside, which announced results impacted by delays to a number of strategic land sales; and brick manufacturer Forterra, which was weak despite announcing a recommencement of operations. In addition, gym operator Gym Group, cloud telecoms specialist Gamma Communications, and insolvency practitioner Begbies Traynor, each gave back some of their recent strong gains.

During the month, new positions were taken in Jet2 holiday operator Dart Group, as part of a fundraising; conventional US gas producer Diversified Gas & Oil; and compliance and governance software specialist Ideagen (an existing holding within the Amati AIM VCT).


Against a strong benchmark rise of 7.9%, the fund lagged with a gain of 5.7%. It has, however, relatively outperformed for the calendar year to date with a fall of 4.1% versus an AIM decline of 9.6%. Positive contributors involved a number of technology and healthcare holdings. Video games publisher Frontier Developments, provided a strong trading update with revenues and operating profit for the current year materially ahead of expectations. All four of Frontier’s current products contributed to this growth, and the company has recently announced further licencing deals with Formula 1 racing and the fantasy miniatures strategy game Warhammer. This holding is now the largest in the portfolio. Video gaming services provider Keywords, announced a placing to fund future acquisitions which was taken well, whilst compliance and governance software specialist Ideagen, gave a positive trading update. Precision medicine diagnostic services provider Diaceutics, announced the launch of the world’s first collaborative drug testing data platform, involving an industry wide network of laboratories and pharmaceutical companies. This should allow Diaceutics to scale up its business to meet the rising demand for precision medicines. There were no significant detractors to fund performance.

During the month a follow-on investment was made in data analytics software specialist Rosslyn Data, which raised funds to strengthen its balance sheet and provide investment in sales and marketing for future growth. It now has around 100 customers, mainly multinationals, which use its platform to manage complex internal data flows from multiple sources. The position in i-nexus, the corporate strategy software provider, was sold following its interim results. This has been a disappointing investment for the fund, with the company continuing to generate losses due to its limited scale, and likely to see further delays in sales in the current environment.