IFSL RC Brown UK Primary Opportunities | Fund Update | February 2024
February: UK drifts higher though lags the US, Europe and Japan
The UK market proved stable as it shrugged off confirmation that the UK was officially in recession, as the 0.3% fall in GDP, marked the second successive quarter of negative growth. Thankfully it is not expected to be a protracted recession as inflation is expected to continue to fall to the 2% Bank of England target, which should allow for interest rate cuts later this year. Unemployment also remains low by historical standards and the tight labour market is resulting in average pay increases above the current inflation level which we anticipate benefitting a consumer recovery.
The US market hit record highs as technology remained in vogue with some exceptional figures from AI darling Nvidia. The Federal Reserve indicated that interest rate cuts in the US may be later than the market expected as inflation, though lower than the UK, proved higher than anticipated. Inflation figures on both sides of the Atlantic will continue to be watched closely.
Segro and Avacta were both added to the portfolio as part of equity raisings. We have seen an increase in the number of companies that are seeking to raise equity for expansion plans, including a possible re-opening of the IPO market. Whilst we do not anticipate a return to the peak years of 2020 and 2021, greater market confidence is likely to lead to more fund raisings as companies seek growth capital.
In February the IFSL RC Brown UK Primary Opportunities fund returned -1.1% compared with 0.2% for the FTSE All Share and -0.1% for the IA UK All Companies sector, all on a total return basis. The Fund’s poor relative performance in the month was not aided by a profit warning by XP Power and disappointing results by Reckitt Benckiser, both saw double digit share price falls in the month.
Purchases
Segro is the UK’s largest listed property company and a constituent of the FTSE 100. It is focused on the industrial and warehouse sector from large ‘big box’ properties to smaller units that serve nearby towns and cities. Its warehouses are focused in the South East of the UK and continental Europe. We acquired the shares as part of a £900m equity fund raise to provide capital for further expansion of its asset base.
Avacta is a pharmaceutical company focused on developing a pipeline of cancer therapies that target the local area rather than more traditional cancer therapies that are less targeted and cause greater patient side effects from the treatment. We acquired the shares as part of a £25m placing at a substantial discount (greater than 30% to the previous day’s closing share price), to further fund the drug development pipeline.
Sales
We trimmed the holding in Barclays following an update that was well received by the market that focused on reducing costs and increasing shareholder returns. The shares still trade at a material discount to their book cost so if these ambitions are met we would expect the discount to narrower further. We also trimmed the holding in 3i Infrastructure on strength.
Cumulative Performance (Total Return %) – To 29 February 2024
| Fund/Benchmark Name | 3M | 6M | 1Y | 3Y | 5Y | 10Y | Since Inception (28/05/1997) |
| IFSL RC Brown UK Primary Opportunities P Acc | 2.3 | 3.2 | -2.0 | -2.8 | 13.2 | 56.7 | 439.7 |
| Quartile Ranking IA UK All Companies | 4 | 3 | 4 | 4 | 4 | 2 | 2 |
| IA UK All Companies | 4.4 | 4.1 | 0.1 | 11.2 | 21.7 | 49.8 | 315.8 |
| FTSE All Share | 3.3 | 3.9 | 0.6 | 25.2 | 27.7 | 63.0 | 365.5 |
Source: FE: 29/02/2024
Discrete Annual Performance (Total Return %) – 29 February 2024
| Fund/Benchmark Name | Year to 29/02/2024 | Year to 28/02/2023 | Year to 28/02/2022 | Year to 28/02/2021 | Year to 29/02/2020 |
| IFSL RC Brown UK Primary Opportunities P Acc | -2.0 | -5.8 | 5.4 | 14.3 | 1.9 |
| Quartile Ranking IA UK All Companies | 4 | 4 | 3 | 1 | 2 |
| IA UK All Companies | 0.1 | 3.2 | 7.6 | 8.5 | 1.0 |
| FTSE All Share | 0.6 | 7.3 | 16.0 | 3.5 | -1.4 |
Source: FE: 29/02/2024
Please be advised that 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.
