May update. A further market recovery but volatility and uncertainty prevail

11th June 2020

These remain unusual and unprecedented times. Following the sharpest market falls in history in March, we have seen a reasonable bounce in April & May as markets look ahead to the tentative re-opening of economies and belief that the worst of the economic data and pandemic has passed. A second wave remains a possibility and what the markets fear most. Volatility remains elevated as earnings visibility remains low. Whilst current conditions are unquestionably difficult, they do produce opportunities to add high quality companies to the portfolio trading at multi year lows. We anticipate these companies not only surviving but able to thrive in years to come as the recovery takes centre stage. We are also seeing potential ‘winners’ from the pandemic- notably in the healthcare and technology sectors. The disruption caused will mean some industries and working methods change for good – to the benefit of some companies and the detriment of others. Well capitalised, nimble and forward-looking companies should thrive as weaker competitors fail to make the necessary changes to their business models.

We are seeing a very high level of companies wanting to raise capital to strengthen their balance sheets – so far over 60 London listed companies have raised in excess of £8bn. We are selectively participating in those we consider to be the most attractive opportunities, whilst also maintaining a well balanced portfolio across different sectors and market capitalisations. By purchasing shares at the time they are raising fresh capital, we are typically buying in at a discount to the prevailing market price, free of stamp duty and broker commission, coupled with now owning a company that is inherently in a stronger position than it was before the fundraise.

This month Polypipe, Compass, Dart Group, Open Orphan, Costain and Johnson Service Group were added to the portfolio as part of fund raisings.

We added to our existing holding in AJ Bell as part of a secondary sell down.

In May, the MFM UK Primary Opportunities fund returned 4.2% compared with 2.9% for the IA UK All Companies sector.

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


***Stock in focus***

Renalytix AI

Renalytix uses artificial intelligence for the early detection of kidney disease, one of the most common and costly chronic medical conditions globally. In May, it announced it has entered into a joint venture to develop and produce Covid-19 antibody test kits. It is early days and difficult to predict how many tests it will produce – potentially 10m a month in the US. The company has also announced its intention to seek a secondary listing on Nasdaq which should open up the story further to US investors. The shares have increased more than 60% in value since we purchased as part of a fund raise in July 2019. It remains one of the most exciting companies in the fund.




Polypipe design and manufacture plastic piping systems principally for use in drainage, plumbing and heating systems. A FTSE 250 constituent, we acquired the shares as part of a £120m placing to reduce debt levels and to allow for acquisitions of struggling competitors.


Compass is one of the larger FTSE 100 companies providing food, hospitality and support services to a wide range of sectors including offices, hospitals, care homes, schools and the military. We acquired the shares at a 7% discount to the previous night’s closing price as part of a £2bn placing to reduce debt and provide more liquidity as a result of the effects of the pandemic on the business. We consider this an attractive entry point to a global business with an impressive track record.

Dart Group

Dart is a travel and leisure company best known for its package holidays and airline, Jet2 Holidays. Clearly the company has been heavily affected as a result of the lockdown as customers have been unable to go abroad. We participated in a £170m placing to provide the company with sufficient liquidity until next Easter should they continue to not be able to operate. We believe that whilst sales will take some time to recover, with a flexible, low cost base, it is one of the industry’s survivors. It is one of the alternative investment markets (AIM’s) largest companies with a market capitalization of over £1.5bn. The shares have soared over 50% since purchase though are likely to remain volatile.

AJ Bell

AJ Bell is an investment platform company that provides stock broking, wealth management, custody and dealing services, principally to retail investors. It is the No 2 market player behind Hargreaves Lansdown. We added to our existing holding as part of a sell down by Invesco who are reshaping some funds as a result of the departure of Mark Barnett, the successor to funds previously managed by Neil Woodford.


Costain is a construction and engineering company. Its projects include high profile government infrastructure projects such as HS2, Crossrail and Highways England. We acquired the shares at a substantial discount as part of £100m fund raising to strengthen the balance that management believe will allow them to win more work. The UK government is likely to award contracts to the strongest companies in the construction sector so as to avoid a repeat of the Carillion debacle which saw a major government contractor fail. With increased infrastructure planned, and following the pandemic, government spending is required more than ever to boost the economy. We consider this a highly attractive entry point.

Open Orphan

Open Orphan is a small cap pharmaceutical company that seeks to buy unloved and under developed drugs, typically from larger rivals, who consider the products non-core. Open Orphan’s aim is to breathe new life into the products. We acquired the shares as part of a fund raising to further the coronavirus challenge study where they are working with major pharmaceuticals on vaccine testing. Whilst clearly not without risks, we view our entry at a 23% discount to where the shares had been trading, as an attractive entry point in a market that is certain to remain in focus.

Johnson Service Group

JSG is a UK focused dry cleaning company and the largest supplier of workwear and linen to the hotel and catering industries. The Company has seen a sharp fall in sales as a result of the pandemic. We participated in an £85m raise to strengthen the balance sheet and we see this as an attractive entry point to a good quality company that will benefit from an economic recovery.




We reduced our holding in this law firm following a near 50% bounce in the share price, using the funds to invest in new primary opportunities.

British Telecom

We got this investment wrong. Having been purchased to provide stability and income, the cancellation of the dividend took us (and the market) by surprise. We had anticipated a dividend cut but not its removal altogether. We therefore felt that with the shares likely to tread water for a time, the monies could be better deployed in new opportunities.


We sold our remaining holding in this sofa and carpets specialist. With the company still not yet able to open due to lockdown and our belief that large ticket items will take some time to recover, we had new opportunities where the capital could be deployed more effectively.

Future Publishing

A publisher of over 50 magazine titles. We sold the shares following a market update and material share price rally.

Duke Royalty

A lender of mortgage length loans to SME’s, the shares had been harshly hit as a result of the pandemic as investors feared a number of their portfolio companies would suffer badly as a result of the pandemic. We used the 50% rally in the share price to lighten one of our larger holdings.


Cumulative Performance (Total Return %)– May 2020

Fund/Benchmark Name 3M to 31/05/2020
6M to 31/05/2020
Year to 31/05/2020
3 years to 31/05/2020
5 years to 31/05/2020
Since Inception (28/05/1997)
MFM UK Primary Opportunities P Acc -5.8 -11.6 -6.8 -2.8 24.1 357.5
Quartile Ranking – IA UK All Cos 2 1 2 1 1 1
IA UK All Companies -7.4 -15.1 -9.3 -7.8 5.7 219.6

Source: FE 31/05/2020


Discrete Annual Performance (Total Return %)– May 2020

Fund/Benchmark Name Year to 31/05/2020 Year to 31/05/2019 Year to 31/05/2018 Year to 31/05/2017 Year to 31/05/2016
MFM UK Primary Opportunities P Acc -6.8 -1.8 6.3 28.0 -0.3
Quartile Ranking – IA UK All Cos 2 2 2 1 1
IA UK All Companies -9.3 -4.7 6.6 21.6 -5.7

Source: FE 31/05/2020


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. R.C. Brown and Marlborough are authorised and regulated by the Financial Conduct Authority. Marlborough Fund Manager are the ACD. The Key Investor Information Document and the Full Prospectus can be obtained via or by request at: