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Market Commentary - February 2021

Posted by Anna Macdonald on 18/Mar/2021

While Covid cases started to tail off as vaccination rollouts ramped up, equity markets were initially enthusiastic, until fears of inflation caused some stocks to sell off, particularly higher rated companies which might be seen as more exposed to future interest rate rises. Central Banks still appear relatively insistent that they will not be minded to increase interest rates given the fragile and uneven economic recovery, however fixed income markets activity tells a different story. The spectre of inflation – after a decade of hardly shifting prices – is beginning to rear its head. Commodity prices from oil to copper to wheat are rising. What is more in question is the persistency of the move upwards. Will capacity come back onstream sufficiently quickly to limit price rises, or will bottlenecks continue, and will growth be able to outstrip inflation? It feels like investment positioning is more important than ever, as we approach one year on from the market rout we saw in the early days of the pandemic.

Meanwhile, a steady stream of IPOs and secondary placings continues to come across our desks. The level of primary market activity globally has been extraordinary and some valuation expectations need a ‘sense check’. As always, we work hard to quiz management and scrutinise the addressable markets for the companies they are looking to float, whilst setting the ‘new’ against the more established names in our portfolios.

Financial services and the details of any agreement between the UK and EU are still being ironed out, and as a consequence, EU listed shares are no longer being traded through London. This led to the Financial Times reporting in January that Amsterdam had overtaken London in terms of volumes of shares traded. The UK government commissioned a review of stock market listing rules in the UK by Jonathan Hill, a former EU commissioner. This was because it was felt that the UK was losing out to Europe and the US in terms of getting their share of stock market flotations. Changes to listing rules proposed by Lord Hill mean that we may see yet more companies list, however, this requires market confidence - and the increased volatility we’ve seen in recent weeks shows that not all market participants share this level of bravado.

TB Amati UK Smaller Companies Fund

The TB Amati Smaller Companies fund rose 4.0%, lagging the Numis Smaller Companies index which rose 4.6%. Performance wasn’t driven by a particular theme. Our biggest contributor was Maxcyte, which rose over 58% during the period. The company raised £40m in a heavily oversubscribed fundraise and attracted new investors to the stock, many from the US where the company is preparing for a NASDAQ listing. The stock has had an incredible year, and its technology is now regarded as gold-standard, used by the leading gene editing and cell therapy companies globally. Forecasts have been significantly upgraded. HeiQ, a stock we bought at IPO in December, recovered some ground lost in January. Atalaya Mining rose over 22% as investors bought stocks exposed to commodity price inflation, including copper, which is mined by Atalaya in southern Spain. China consumes over 50% of global supply, and is growing fast as it emerges from the pandemic. Eco Animal Health rose sharply once shares started trading after their six week suspension. The outlook for poultry and pig markets is strong and analysts have sharply upgraded their earnings expectations. Intermediate Capital Group was another positive contributor however we have now sold this position because it is a FTSE100 company. Keen to keep our weighting in alternative financials, we have bought a position in Gresham House. Gresham House manages a broad range of assets including Forestry, New Energy & Sustainable Infrastructure, Private Equity, Housing and some specialist Public Equity funds.

Detractors from performance included our video gaming names Sumo and Frontier Developments which suffered from profit taking across technology exposed stocks. AEX Gold fell sharply on difficulties in getting the workforce and equipment they need owing to C19 related travel restrictions, resulting in a decision being taken to delay construction of their mine.

We exited positions in Global Data and Quixant. We took a position in Auction Technology Group which floated on the main list on 26 February. We have also bought the homewares retailer Dunelm, the digital ad agency S4 Capital founded by Martin Sorrell, and NCC Group which has built as strong position delivering cyber security to Silicon Valley companies and beyond, with significant coverage in the UK.

Amati AIM VCT

The VCT fell by 1.7% against a benchmark which rose 1.8%, so a significant underperformance of 3.5%.

Our biggest contributor was Maxcyte, which rose over 58% during the period. The company raised £40m in a heavily oversubscribed fundraise and attracted new investors to the stock, many from the US where the company is preparing for a NASDAQ listing. The stock has had an incredible year, and its technology is now regarded as gold-standard, used by the leading gene editing and cell therapy companies globally. Forecasts have been significantly upgraded. Eden Research also rose strongly.

Detractors from performance included our video gaming names Keywords Studios and Frontier Developments which suffered from profit taking across technology exposed stocks. Polarean Imaging, one of our largest positions, fell nearly 10%.

We didn’t make any qualifying investments during the month, but are anticipating a busy period for new investments over the coming months.