12 September 2018
August saw a notable slowing of market momentum and a thinning of liquidity which gave rise to an increased tendency for previous strongly performing shares to roll over.
Prominent examples of this in the portfolio were: Morses Club which fell back, having seen the one-off benefit last year from the travails in competitor Provident Financial they reported unsurprisingly slow loan growth this year; and XP Power, which gave back ground despite strong levels of order in-take, perhaps due to the deterioration of sentiment on global trade arising from the threat of further escalation in tit-for-tat tariff increases arising from US Presidential policy. Overall the fund return was -0.9% for the month, which compares to -0.3% for the benchmark.
Blue Prism, the software robot business, continues to be a standout performer for the year. They have managed to grow organically at a phenomenal rate, which has reassured investors, despite the lack of profitability. Shares rose over 23% in the month. Other technology names that rose were Learning Technologies Group and GB Group. Keywords Studios also performed well after announcing a small bolt-on acquisitions and a more substantive deal which moves them into co-development of computer games. The biggest negative during the month was FFI which issued a poor set of results a long time after the period end, giving rise to a significant share price fall.
We added to our position of Gym Group - they had performed well into and after their full year results. The expansion of the group continues organically and by acquisition, and their scale is giving obvious advantages, particularly in regards to their new LIVE IT offering. This allows members to access all their gyms, take a friend along and use body composition monitors for an extra £4.99 a month. A third of new members have not been to a gym before and Gym Group remains a successful disruptor of the space and is a bright spot in the leisure space which has suffered as consumer spending has remained restrained.
Examples of this in the portfolio were: Water Intelligence, which had risen particularly strongly recently, and Angle. A number of the large holdings in software and online businesses continued to perform strongly, however, such as Learning Technologies, GB Group, Ideagen, and Keywords Studios, which announced small bolt-on acquisitions and a more substantive deal which moves them into co-development of computer games. Overall the portfolio return was 1.5% for the month, which compares to 0.6% for the benchmark.
We made one new investment during the month in Bonhill, formerly known as Vitesse Media. Bonhill owns publications and runs events covering financial services, technology and diversity. In addition to using VCT money to expand these UK businesses, the company did a larger non-qualifying fund raise to acquire Investment News, a US financial services focused journal. Because the VCT pre-clearance letter from HMRC didn’t arrive in time for this transaction we ended up self-certifying the qualifying status of it, but had to delay our investment decision in order to do that, the result of which was that we ended up with a smaller investment than we would ideally have liked
Although the stock market slows down in August, life in Edinburgh does the opposite, as the city’s population nearly trebles during the month of festivals. The Edinburgh International Book Festival remains a favourite place of ours for stocking up on ideas and inspiration for the year ahead, and this year was as rich as ever, with a great many outstanding talks by authors. Highlights for me were Helen Bellany talking about her biography of John, the man she married twice, and who was amongst Scotland’s most important artists of recent decades; Chelsea Clinton who was interviewed beautifully by Sally Magnusson; and Gina Miller talking about her book Rise, which gives an account of her legal battle with the Government over Article 50, the only event I have been to at the book festival which ended with a standing ovation. It is a disturbing sign of the times that she had to discuss the severity of the personal abuse she received over bringing this case, but it was a strong reminder that when freedom of speech is threatened, it is all the more important that we have the courage to exercise it.