Market Commentary - April 2021

18 May 2021

Posted by Paul Jourdan on 18 May 2021

Stock markets around the world continued to trend upwards in April in anticipation of developed economies opening up progressively through the remainder of the year, and UK small and mid-sized companies joined in. There has been a significant change in market leadership during the course of 2021, which was even more marked in April, with some of the best performing growth companies losing momentum whilst more traditional businesses, which had been badly impacted by the pandemic, have caught back up to where they were previously or are running beyond that. There is now a debate to be had as to what degree the opening up post-pandemic is priced in. This will depend a good deal on how rapidly the large amount of UK household savings from last year, which are reckoned to be around £175bn, are spent. The pandemic has left an unusual financial imbalance, with households having record savings whilst governments around the world have record levels of debt. During 2021 and into 2022 we would expect this to result in rapid bounce backs in consumer demand which are likely to be met by significant price rises in certain areas where supply is constrained, but that the market’s view of this will begin to be tempered by concerns about how central banks respond to higher levels of inflation and ultimately how governments manage to wean themselves off the forbidden fruit of the Magic Money Tree (sometimes given the more elaborate title Modern Monetary Theory).


TB Amati UK Smaller Companies Fund

The fund rose by 5.2%, slightly lagging the benchmark which was up 5.9%, reflecting the shift to more value-oriented stocks in the market. Stocks that drove performance included those which are ‘opening up’ plays, such as Jet2 and OSB Group (previously known as One Savings Bank). We also saw some strong rises amongst the top holdings in the fund, notably Renalytix, which rose 16.5%, which continues to make excellent progress towards commercialising KidneyIntelX, its innovative AI driven diagnostic tool for detecting patients with early stage kidney disease who are at risk of progressing to more severe disease. Inspecs rose 15.4%, publishing a strong Q1 trading update at the end of the month. Detractors were mostly stocks seeing some profit taking after strong runs, such as Eqtec, Judges Scientific and CMC Markets. Pantheon, exploring for oil and gas in Alaska, came out with a disappointing test result after its winter programme, and we exited what was a small position. Pleasingly, our recent IPO additions, tinyBuild and Auction Technology Group rallied further during the month by 28% and 16% respectively.

We added to our holdings in DFS, Dunelm, Grainger, MJ Gleeson and XP Power, where we can see cyclical growth as well as market share gains as we emerge from the pandemic. We also opened new positions in Tyman and Vistry. Tyman supplies building products to the door and window industry primarily in the US, where construction and home improvements have seen an upsurge of activity. Vistry is a UK housebuilder, which like Countryside Properties, has a division which specialises in the build-to-rent sector working in partnership with institutional investors. We see this as a high growth area of the UK housing market, particularly as the pandemic restrictions ease, and Vistry should benefit from having nationwide capabilities. We reduced took some profits in Draper Esprit, following its strong rally, and sold our position in FDM.



The NAV rose by 9.4% during the month, which compares to a 7.4% rise for the Numis Alternative Markets Total Return Index. The gains were in large part driven by two or the largest holdings in the portfolio, Polarean Imaging and Frontier Developments. Polarean has been rising strongly since it successfully raised £25m in March to prepare for the commercial launch of its Xenon Polarising system for 3D lung imaging, which it is hoping to have approved by the FDA in the US in Q4 this year. A recovery in video gaming sentiment drove Frontier Developments’ share price back up to near all time highs. Other names which had softened in the shift to a more value focus on AIM recovered somewhat, with Learning technologies, AB Dynamics and Sosandar posting double digit gains. The main detractor to performance was Diurnal, which raised £20m in order to commercialise its second drug, Efmody (formerly called Chronocort), a treatment for congential adrenal hyperplasia, and saw its shares fall to the fund raising price. This followed a strong run in March, when an advisory committee of the EMEA recommended the drug for approval, which is now expected formally in June.

We made no new qualifying investments in April but continue to see a strong pipeline of potential new deals.