The Fund aims to achieve long-term capital growth by investing in UK listed companies across the broad market cap range.

Divergences in financial markets, across or within asset classes, are a fact of life. Excess returns in financial markets are typically made when new divergences emerge. Divergence is defined as “the act of moving away in thought, or actions, in different directions”. With that in mind, it is worth observing the steadily accumulating evidence of precisely this between the UK and the US. The US consumer has run down their excess pandemic savings whilst, in the UK, the surplus is north of £200bn. UK PMIs are at the top of the G7 while slowing down in the US, with the latter also seeing lingeringly persistent inflation when it is a near certainty to be sub-2% domestically by June. Economics do not drive stock markets, of course, but they do inform them. The UK is extraordinarily cheap by any reasonable measure. The US is best judged by others who operate in that market, but with the relationship between the two having recently hit a near 50-year high, it is certainly not hard to argue the elastic is incredibly stretched. Markets are driven by the marginal buyer or seller, and the impact on price formation, sentiment, and momentum can be swift – Japan being a powerful recent example. Time will tell if the UK follows a similar trajectory, but the marked pick up in international interest, albeit from remarkably depressed levels, suggests it is, at the very least, a credible possibility.

April was a pleasingly strong month for the Fund on several levels. Firstly, it was very broad-based and spread across a number of stocks, sectors, and market capitalisations. Secondly, and equally encouragingly, a substantial chunk of these moves has been based on stronger-than-expected fundamental developments and not a re-rating, so the portfolio has not been ‘using up fuel in the tank’. Finally, it came despite the persistent headwind from the small/mid-cap mix, where the strategy has significant exposure and which, at the time of writing, is underperforming for the third consecutive year. The latent potential in this area of the market, documented here on many occasions, remains as exciting as it ever has been.

Funding Circle was the largest contributor over the period, with the market finally beginning to wake up to the staggering anomaly in its valuation. Results were strong, with substantial growth in Flexipay, successful confirmation of its being the first Fintech to secure a coveted SBA licence, decisive action at its loss-making US business, and a meaningful share buyback. The enterprise value remains derisory, and it continues to be the Fund’s largest position. Elsewhere, we saw strong, high-quality results and a beat from AB Foods, better-than-expected numbers from Accesso and Severfield, encouraging trading updates from Rank Group, Volex and Aquis, as well as a host of other pleasing developments peppered throughout the portfolio. Detractors meanwhile were Alphawave, which surprisingly reined in projections despite a strong forward order book and the underweight in AstraZeneca, which squeezed higher on decent results.

The UK continues to attract an avalanche of inbound corporate activity, with confidence rising and premiums drifting up to reflect this. UK Growth has had six approaches for portfolio assets over the last 12 months or so, and with the prevailing mispricing, more can be reasonably expected, both in the market and the Fund. Two new ones were announced during April at FTSE 100 miner Anglo American and small-cap software company Gresham Technologies. There is no shortage of ideas to rotate this capital into should they consummate, but both are great long-term growth assets that would be very comfortable owing to fair prices for their strategic value not materialising. 

Data shown net of fees, net income reinvested. Please note that all fund performance is shown against the FTSE All-Share TR 12pm adjusted. Performance of other share classes may vary and is available on request.Where shown, monthly returns table shows compounded discrete monthly performance. All performance figures illustrate performance from the first full day that the Fund held investments. During the period 6 November 2001 to 7 May 2003 the performance record is based on the pre-existing share class that had a higher management fee.

FTSE International Limited (“FTSE”) © FTSE 2017. The Industry Classification Benchmark (“ICB”) and all  rights in it are owned by and vest in FTSE and/or its licensors. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. Neither FTSE, nor its licensors accept any liability for any errors or omissions in the ICB. No further distribution of ICB is permitted without FTSE’s express written consent.

Past performance is no guarantee of future performance. The value of an investment and the income from it can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. The Funds investment include shares in small-cap companies and these tend to be traded less frequently and in lower volumes than larger companies making them potentially less liquid and more volatile.