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MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – January 2021

MI Chelverton UK Equity Growth Fund – Monthly Manager Commentary – January 2021

UK equities started the year strongly as investors celebrated the December BREXIT trade deal with the UK market, which had lagged the major overseas markets for most of 2020, being seen as investable again. This strong performance was concentrated on large and mid-caps, with a bias towards cyclicals, and as such it left the Growth Fund trailing in its wake. However, as January progressed, confidence was eroded by the resurgence of the COVID-19 pandemic, with the resultant lockdowns undermining investors’ expectations, enabling the Fund’s performance to catch-up, to the extent that it was comfortably ahead of its IA UK All Companies benchmark by the end of the month.

Healthcare stocks, as was the case through much of 2020, continued to generate strong returns with Renalytix (kidney diagnostics) and Angle (cancer diagnostics) being the Fund’s top contributors. Two of the Fund’s larger stocks, namely Brooks MacDonald and Clinigen, which had both been in the doldrums for some time, also contributed strongly as they started to be re-rated. Finally, AFH Financial rose on the back of an agreed take-over approach.

On the trading front, we continued to add to the Fund’s UK infrastructure exposed stocks in the construction sector, namely Balfour Beatty and Breedon. We started a new holding in GlobalData, one of our long-term favourites in the media sector, and topped up several holdings on share price weakness, including Ultra Electronics, Liontrust Asset Management, IG Design, Essentra and RWS Holdings. Conversely, we took some profits across a number of the Fund’s strongest performers on valuation grounds, trimming several healthcare holdings, namely Maxcyte, Renalytix, Angle and EKF Diagnostics, as well as top-slicing Gamesys, Inspecs, dotDigital and Ideagen.

At the time of writing, we are seeing a wave of IPO activity particularly in the Technology sector, with business owners able to enjoy the high valuations available after the sector’s strong performance in 2020, as it proved its resilient through the pandemic. To date, such fund raisings have been snatched up, notwithstanding their stretching valuations, and we have not participated in any of the technology IPOs. Furthermore, given the high ratings, we have continued to whittle down some of the Fund’s existing Technology holdings.

At the other end of the spectrum, we are seeing a pick-up in takeover activity, largely focused on the value end of the market, with approaches for the likes of Scapa, Signature Aviation, Marston’s, Aggreko and McCarthy and Stone, as Private Equity in particular look to acquire undervalued UK listed assets now the BREXIT deal is out of the way. We continue to gently build up exposure to some of our preferred cyclical names, which we hope will rebound strongly as and when lockdown restrictions are eased.