October update – a recovery in UK domestics sees mid and small cap outperformance

12th November 2019

We participated in five primary opportunities – Duke Royalty, 3i Infrastructure, Sigmaroc and WH Smith raised new capital whilst there was a secondary sell down in IntegraFin.

In October, the MFM UK Primary Opportunities Fund returned -0.91% compared with -1.40% for the FTSE All Share and -0.28% for the IA UK All Companies Sector.

October, like the previous month, proved somewhat volatile. A two way pull between global growth fears and expectations of continued monetary easing by central banks – the Federal Reserve cut interest rates for the third time this year. Following a prolonged period of sterling weakness, it enjoyed a sharp rebound against the US dollar and the euro on Prime Minister Johnson agreeing a deal with the EU. Whilst he was unable to get this through parliament and an election has now been called for December, the market’s relief of a no deal Brexit being averted was palpable and saw a sharp rally in the mid cap FTSE 250, which showed gains for the month. The EU’s grant of an extension to 31 January 2020 allows time for a general election which may break the log jam and allow a mandate for the UK to leave next year (our base case) or a second referendum.

With a general election campaign soon to get into full swing, we anticipate primary opportunities to be quieter than normal given what is usually one of the busiest times of the year for issuance. Nevertheless, as this month’s opportunities show, good quality companies with strong track records are still able to raise money for the expansion of their businesses. The IPO market, whilst clearly not rampant, is also showing signs of life.

The UK market remains unloved and out of favour and whilst these are challenging economic times, we anticipate a resolution to the UK’s relationship with the EU sooner rather than later, which should be particularly beneficial for the mid and small caps in our portfolio.

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



Duke Royalty

Duke Royalty provides mortgage type length loans to smaller, often family owned, businesses. We added to our holding following a placing to raise £20m which will allow the Company to expand its portfolio. The shares offer an attractive return on investment profile and a rising dividend and have been a solid performer since our first investment in 2017.

3i Infrastructure

3i has investments in 27 infrastructure projects, principally in Europe, across industries including transport, energy and utilities. We acquired the shares as part of a £220m raise to pay off some of its revolving debt facility following recent acquisitions. We consider the shares a stable, defensive play offering downside protection and a dividend yield in excess of 3%.


Sigmaroc is a construction materials business. We acquired the shares as part of a £33m fundraise to acquire a high quality limestone quarry in Belgium in what we consider to be a materially earnings enhancing deal.

WH Smith

Best known for its high street stores, it is the airport outlets division that is driving growth. A business that has seen its high street sales halve over the past ten years yet still increase the profits on its high street division by a quarter, commands our respect. We acquired the shares as part of a £155m placing with the proceeds used to buy a US business with 170 outlets.


Integrafin owns Transact, the largest UK investment platform to UK financial advisers, who are able to choose a wide selection of tax wrappers and investments via the platform. Current funds under direction are over £37bn. We acquired the shares at a 6% discount to the previous night’s closing price as part of a placing by private equity following a successful IPO in 2018. The shares are a market leader in a growing industry.



Ten Entertainment Group

We trimmed our holding in the UK’s second largest ten pin bowling operator. The shares have enjoyed a strong run since we added to the holding when buying from Woodford Investment Management at distressed levels in June.


We trimmed our holding on strength in the UK’s largest independent retailer of nearly new cars.

Brewin Dolphin

We took advantage of the rally in FTSE 250 stocks to take profits in this wealth manager. Having recently bought into other financial services companies, we were content to reduce our overweight position at a time of market strength.

Savannah Petroleum

Having reduced our holding in the previous month, we sold our remaining holding in order to raise funds for forthcoming primary opportunities. The shares have proved more volatile than we would ideally like and so we are content to recycle our investment.

Yourgene Health

We took profits in this small cap pharmaceutical company in order to fund further primary opportunities, with the shares lacking a short term catalyst.

Phoenix Group/Standard Life Aberdeen/St James Place

With a sharp rally in UK domestic companies in the month and cogniscant of our overweight position in financials, we used the rally to trim our holdings in all three FTSE 100 companies. All offer attractive dividends and are likely to benefit further from strong equity markets and a deal with the EU.


Cumulative Performance (Total Return %)– October 2019

Fund/Benchmark Name Year to 31/10/2019 3 Years to 31/10/2019
5 years to 31/10/2019
Since Inception (28/05/1997)
MFM UK Primary Opportunities P Acc 4.20 27.78 52.57 390.90
Quartile Ranking – IA UK All Cos 3 1 1 1
IA UK All Companies 6.80 19.01 37.22 252.04
FTSE All Share 6.79 19.31 37.89 265.44


Discrete Annual Performance (Total Return %)– October 2019

Fund/Benchmark Name Year to 31/10/2019 Year to 31/10/2018 Year to 31/10/2017 Year to 31/10/2016 Year to 31/10/2015
MFM UK Primary Opportunities P Acc 4.20 0.02 22.61 11.65 6.93
Quartile Ranking – IA UK All Cos 3 1 1 2 2
IA UK All Companies 6.80 -3.65 15.64 7.85 6.86
FTSE All Share 6.79 -1.47 13.39 12.22 2.99

Source: FE 2019

Source: RCBIM at at 31 October 2019


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 FCA. Marlborough Fund Manager are the ACD. The Key Investor Information Document and the Full Prospectus can be obtained via www.marlboroughfunds.com or by request at: info@rcbpo.co.uk