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Market Commentary - December 2018

Posted by David Stevenson on 16/Jan/2019

2018 has ended with some fairly bleak statistics, including the worst December outcome for equities since 1931, and the first time since 1994 that cash has outperformed both equities and bonds. Many of the issues still circulating at the start of 2019 – China/US trade tensions, monetary policy tightening, UK/EU political uncertainty, and concerns about corporate earnings peaking after many years of low interest rates – suggest ongoing headwinds. One year forward from the expected synchronised global growth of late 2017, we now find weakness in most developed economies, with China and the US the most concerning. Against that backdrop, many investors may still be attracted to cash, but there has been a meaningful rebound across all segments of the UK market in early January. Clearly, no one knows whether this is a short term bounce or a longer term opportunity. For the UK, the next few weeks in the Brexit saga will be hugely influential. However, it may provide some support for the old maxim that time in the market is more important than timing the market. Another potential positive is that the UK market remains cheap relative to others, with any resolution of the uncertainty likely to spur further investor appetite.

TB Amati UK Smaller Companies Fund

Against a benchmark decline of 5.2%, the fund outperformed with a fall of 3.6%. Contributing to this were gains across a range of the larger holdings. The UK’s second biggest home credit lender, Morses Club, benefited from its announcement that an FCA review of high-cost short-term lending was unlikely to have an adverse impact on the business. Indeed, the FCA report commented positively on the home credit sector. US energy producer, Diversified Gas & Oil, announced a definitive agreement with West Virginia’s environmental authorities regarding well decommissioning obligations, which had been a concern for investors. Global litigation finance provider, Burford Capital, recovered from recent weakness on the announcement of funding arrangements being put in place on favourable terms with a sovereign wealth fund to enable it to invest a further $1.6bn in new cases. Gaming hardware and software provider, Quixant, also bounced from its recent sell-off. Offsetting weakness, with no related news flow, came from e-learning specialist, Learning Technologies; discount retailer, B&M; asset manager and fiduciary advisor, River & Mercantile; and pharmaceuticals and clinical trials specialist, Clinigen. Office services provider, Restore, was impacted by the retirement of its well-regarded CEO, but the shares have since recovered all of this weakness in early January. During the month new positions were taken in telecoms infrastructure specialist, Spirent; insolvency litigation finance provider, Manolete; and Pantheon Resources, an oil and gas explorer with material asset potential in Texas and Alaska. The fund’s position in Boohoo was sold.

Amati AIM VCT

In an extremely weak month for AIM stocks, the fund fell 7.7% reflecting a benchmark decline of 7.9%. Some of the largest holdings suffered the greatest weakness. US hospital revenue integrity software provider, Craneware, fell 17%, despite issuing a positive trading update late in the month. Computer gaming services provider, Keywords, fell 13%, whilst also issuing a supportive trading report. E-learning specialist, Learning Technologies, dropped 28%, whilst compliance management software specialist, Ideagen, fell 14%, and specialist automotive engineer, AB Dynamics, fell 8%. None of these companies issued any announcements of a negative nature. Offsetting gains came from gaming hardware and software provider, Quixant, and a range of healthcare investments such as Amryt Pharma, Creo Medical, Tristel and Oncimmune. This reflected positive news in some cases, but also perhaps an investor preference for less economically sensitive stocks. A new position was taken during the month in Polarean Imaging, a drug-device combination company which has developed enhanced imaging technology for MRI scans using Xenon gas. The fund’s position in Venn Life was sold.