A busy summer period as we participated in a plethora of attractive primary opportunities

In July , IFSL RC Brown UK Primary Opportunities (+1.8%) outperformed the UK equity market (+1.2%), a 6th month out of 7 this year of outperformance by the fund.

A busy period for primary opportunities post election and pre an expected quieter August. We participated in primary placings in Ultra Electronics and Marlowe and a secondary placing in Biffa. The IPO market was buoyant and we participated in the successful IPO’s of Arena Events, Angling Direct, Supermarket Income REIT, Empiric Student Property and Quiz Clothing.

Markets trended higher in the month and volatility remains unusually low-  the start of Q2 earnings season has begun well and US markets have hit new highs. The Eurozone continues to show signs of life with unemployment at post crisis lows. UK GDP growth remains weak (Q2 +0.3%) in the face of Brexit uncertainty and has again delayed the potential for an interest rate rise.

Markets are trading at historically high valuations which are justifiable given the earnings momentum and attractive dividend yield on offer, particularly from the UK market. However we are cognisant of the strong run in markets in the past year and the stretched valuations in some parts of the markets. We continue to emphasise buying into good quality companies at reasonable prices.

Purchases

Ultra Electronics

The shares were acquired at a discount as part of a placing to fund the acquisition of US defence company Spartan. Defence spending is set to rise globally and we anticipate Ultra to be a beneficiary of this, offering compelling value compared with BAE Systems.

Marlowe

We added to our holding as part of a £20m placing to fund the acquisition of Ductclean which builds on the Fire Safety and Water Treatment businesses. The company continues to be acquisitive as it seeks to consolidate a fragmented market.

Biffa

The shares were acquired at a 5% discount to the previous night’s close following a placing by private equity. Biffa provides public and private waste and recycling services and is successfully making small earnings enhancing bolt on acquisitions.

Arena Events

Arena is a leading provider of temporary physical structures, seating an interior fit out in the UK and has more recently expanded into 7 further countries. Its long term clients include Wimbledon, The Ryder Cup and MTV Music awards. The shares were purchased at IPO.

Angling Direct

Angling Direct is the largest specialist in store and online retailer of fishing tackle in the UK whose strategy is to consolidate a fragmented and growing market. Angling is the 6th largest UK sport generating direct and indirect sales of £3.5bn. Growth in store and online offers exciting potential. The shares were purchased at IPO.

Supermarket Income REIT

SIR raised over £100m at IPO to buy high quality, large supermarket sites operated by the big 4 supermarkets. Recent changes to Solvency II rules mean life insurance companies and pension funds are likely sellers of the assets. Yields on supermarkets have drifted since 2014, unlike all other property types. The strong tenants and 5.5% dividend yield we consider as highly attractive.

Empiric Student Property

ESP raised £150m to fund the purchase of a number of assets in London where it has relatively little exposure. The weakening in London property prices has resulted in more attractive prices and the opportunity to buy properties in the capital with a yield in excess of 5%.

Quiz Clothing

Quiz is a fast growing clothing retailer with a store and online presence, targeted at a younger female demographic. The shares offer exciting growth prospects and the founders remain heavily involved in the business. The new investment should increase the rate of growth. We acquired the shares at IPO.

British American Tobacco

We added to our holding by buying in the secondary market following the sharp share price fall as a result of the FDA announcement that it is looking to lower levels of nicotine in cigarettes and other related products to non addictive levels. Clearly this is not a positive development for the industry but any actions we anticipate will take a long time to implement and we felt the sell off overdone. The dividend yield of near 4% remains attractive.

Sales

Fever-Tree

The undoubted star of the portfolio since IPO in November 2014. After another stunning set of results we took the opportunity to reduce our holding following a sharp price increase and further earnings’ upgrades. Despite the sale it remains one of our largest holdings.

Midwich

We reduced our holding following a positive trading update and a sharp share price jump. Recent acquisitions are performing well as the distributor of audio visual equipment company continues to expand its global footprint.

Countryside

We sold our modest holding to raise funds for new primary opportunities. This housebuilder has performed strongly over the past year as the market has re-rated it. Whilst we are not overly concerned with the UK housing market, we felt there were better opportunities elsewhere.

Microfocus

The shares were sold on concerns that the major acquisition of Hewlett Packard Enterprise may not be as smooth as the market anticipates. The shares have performed well for us since purchase and we felt there were more attractive opportunities elsewhere.

HSBC

We trimmed one of our largest holdings following strong results and the expectation that excess capital may be returned. It remains a core holding in our portfolio given its international exposure and attractive dividend.

Discrete Annual Performance – July 2017

Fund/Benchmark Name	31/07/2012 to 31/07/2013	31/07/2013 to 31/07/2014	31/07/2014 to 31/07/2015	31/07/2015 to 31/07/2016	31/07/2016 to 31/07/2017
IFSL RC Brown UK Primary Opportunities P Acc	18.82	8.03	5.26	4.49	27.51
IA UK All Companies	27.29	6.66	8.58	0.86	16.57
FTSE All Share	24.28	5.61	5.38	3.82	14.9

Source: FE 2017

The past is not necessarily a guide to future performance. Investments and the income derived from them can fall as well as rise and the investor may not get back the amount originally invested.