IFSL RC Brown UK Primary Opportunities | Fund Update | May 2022

9th June 2022

May: Markets stand firm despite UK inflation hitting 40 year highs

May proved a volatile month albeit the UK market posted modest gains. Large caps again outperformed mid and small caps. The latter are suffering due to their greater exposure to consumers whose spending power has been hit hard by rising commodity prices as a result of the Russian invasion of Ukraine, and rising interest rates. UK inflation now stands at 9% and is expected to rise further still before we start to see a slowdown in the rate of inflation, whilst the Bank of England raised interest rates to 1% – and are expected to rise further. Whilst the outlook is far from benign, we consider a number of growth companies that we hold that have been heavily marked down this year, now trading at values more akin to those of ‘value’ companies with little or no growth. In time, we expect good quality growth company valuations to reflate as the uncertainty over inflation becomes clearer.

We acknowledge that many constituents of our portfolio have a growth bias – this is due to us buying companies typically at the stage they raise money, which more often than not is to allow them to grow their businesses. Nevertheless, we like to have a well diversified portfolio of 60-80 stocks across different sectors and market capitalisations. We are highly cognisant of the de-rating  growth companies have seen this year and we do not know how long growth companies may remain out of favour or if further contraction in growth company valuations may occur. As a result, so far this year, most of the primary opportunities we have participated in have been lower beta, higher dividend paying stocks such as Gore Street Energy Storage, Supermarket Income REIT, LXI REIT, Home REIT & Duke Royalty. Whilst these stocks may not provide explosive growth and therefore sharply rising share prices, they all provide a dividend yield in excess of 4% and as a result of our primary opportunities approach, we have been able to purchase all at a discount to their prevailing share price. The forecast dividend yield of the fund now stands at 3.4% (before costs), up from 1.8% at the start of the year.

This month we added Home REIT to the portfolio and added to our holding in Duke Royalty. Both raised capital for expansion purposes.

In May the IFSL RC Brown UK Primary Opportunities fund returned -0.31% compared with 0.69% for the FTSE All Share and 0.14% for the IA UK All Companies sector. The UK markets’ modest valuation continues to attract the interest of private equity and overseas buyers with mid-caps Countryside and Contour Global both receiving formal takeover bids.



Home REIT is a property company seeking to alleviate homelessness in the UK by creating and acquiring a portfolio of high quality, low level sustainable rents, which deliver savings to local authorities. We acquired the shares at a 6% discount to the prevailing share price as part of a £260m equity raise. They offer an attractive inflation protected rising dividend yield and the company is expected to enter the FTSE 250 at the next quarterly reshuffle.

Duke Royalty

Duke Royalty provides mortgage type length loans to smaller, often family owned, businesses. We were happy to add to our holding as part of a £20m raise which will allow the company to expand its portfolio of debt lending further. In our view the shares offer exceptional value and a forecast dividend yield of 8%.


Given heightened market volatility, we are content to hold a little more cash than normal. We currently have 6% of the fund in cash, awaiting new primary opportunities or to take advantage of any sharp market falls that may occur. Underperforming small caps K3 Capital and Eneraqua were sold. We trimmed the large holding in Supermarket Income REIT following a strong share price performance. Oil majors BP & Shell were both trimmed as we took advantage of further oil and commodity price strength. Both remain two of our largest holdings.

Cumulative Performance (Total Return %) – May 2022

Fund/Benchmark Name 3M to 31/05/2022 6M to 31/05/2022 Year to 31/05/2022 3 Years to 31/05/2022 5 years to 31/05/2022 Since Inception (28/05/1997)
IFSL RC Brown UK Primary Opportunities P Acc -1.8 -5.5 -5.0 17.1 22.1 474.8
Quartile Ranking IA UK All Companies 4 3 3 2 1 1
IA UK All Companies 0.6 -1.7 -1.5 15.0 16.8 304.7
FTSE All Share 2.3 6.2 8.3 18.4 22.2 332.8

Source: FE: 31/05/2022


Discrete Annual Performance (Total Return %) – May 2022

Fund/Benchmark Name Year to 31/05/2022 Year to 31/05/2021 Year to 31/05/2020 Year to 31/05/2019 Year to 31/05/2018
IFSL RC Brown UK Primary Opportunities P Acc -5.0 32.3 -6.8 -1.8 6.3
Quartile Ranking IA UK All Companies 3 2 2 2 3
IA UK All Companies -1.5 28.6 -9.3 -4.7 6.6
FTSE All Share 8.3 23.1 -11.2 -3.2 6.5

Source: FE: 31/05/2022

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.