It was a relatively subdued month for equities after the market’s recent strong run. Our general observation is that Growth stocks have largely flat-lined for some time, having performed strongly in 2020, whilst cyclicals, which have enjoyed a strong rally with the prospect of the economy re-opening, have now paused for breath. Certainly, valuations of the cyclical stocks in the Growth portfolio are starting to look quite extended, and now need upgrades to drive further performance. We regard upgrades as entirely feasible, as most of the management teams we speak have set expectations very conservatively, mindful of a possible resurgence in the pandemic and the impact of supply chain issues, which in turn are impacting raw material prices. From a performance point of view there were no particular themes last month with Future (the Fund’s largest holding) and Liontrust Asset Management being our strongest contributors on the back of good results, whilst Clinigen fell sharply when it warned that it would miss profit forecasts due to weak demand for one of its main pharmaceutical products, in part due to disruption caused by the pandemic.
On the corporate front we are seeing an exceptionally high level of IPO activity reflecting a release of pent-up supply caused by BREXIT and then the pandemic. Our observation is that a number of ecommerce businesses have gained scale more rapidly during the pandemic, as consumers and businesses adapted to doing more buying online, so accelerating their plans to come to market. Countering this pick-up in equity supply has been the notable increase in takeovers of UK listed companies particularly by Private Equity.
During the month we bought back into two longstanding favourites in our investable universe, notably Craneware and Mattioli Woods, participating in placings to fund earnings enhancing acquisitions. We also added to Access Intelligence in a fundraise to help them finance a material acquisition. Otherwise, we added to Clinigen and Homeserve on the back of recent share price weakness and banked profits in some of our stronger performers, most notably Future after its strong recent run.