Market Commentary - August 2019

18 August 2019

Posted by Anna Macdonald on 18 Aug 2019

August is usually a quiet holiday month – except in Edinburgh when we become hosts to the largest arts festival in the world. The Fringe has overtaken the Edinburgh International Festival in terms of the sheer number of shows and visitors. Of course one of the main themes on the comedy circuit was Brexit, and the seemingly endless fodder for impersonation to be found in Johnson, Bercow, Rees Mogg, et al. Brexit is a live issue in the markets too and is discussed daily by analysts and companies, keen to get a read on what the eventual outcomes will be. The most pressing concern – whether there will be a ‘deal’ or not – has eclipsed the long term uncertainty surrounding the United Kingdom and its future trading relationships with the EU and beyond. Companies that we speak to are wary of committing resources to a second putative exit date. They have voiced concern about how to keep hold of staff from outside the UK, particularly in a competitive labour market. Volatility doubled in the UK equity market over the month. The FTSE250 fell by 4.1% in August and Small Cap by 2.1%. The weakness in Burford Capital, one of the most significant constituents of AIM meant the Numis Alternative Markets Index fell by over 5.7%. The difference in yield between equities and fixed income has become even more stark, with the main market yielding near 5% and 10-year gilts around 0.5%. Much of this can be put down to a slowing global growth environment as well as the political climate in the UK. Bids have continued for UK stocks by overseas companies and private equity funds. In August we saw bids for Entertainment One and Greene King.


TB Amati UK Smaller Companies Fund

The portfolio fell by 3.3%, slightly underperforming the benchmark index, which fell by 2.7%. Stocks which fell included Manolete Partners, which suffered from profit-taking after a successful IPO in December 2017 which saw its shares more than double. There was some collateral damage from the wider litigation funding sector as Burford Capital had an extraordinary month. Muddy Waters published two ‘short notes’ – advising funds to sell the stock – and this led to an intraday fall of over 50% for Burford in early August. There was further weakness in domestic names, such as One Savings Bank, which can be attributed to Brexit anxieties.On the positive side, there was continued strength in Spirent Communications, which was up nearly 18% following an investor roadshow in the US.XP Power, which designs and manufactures power supplies for industrial equipment, rose by 12.9%, and Scapa rebounded 16%, recovering some ground after the loss of a principal contract. Amryt Pharma rose 43% after it was subject to a reverse takeover. The widening of the discount of small-cap companies relative to mid-sized companies has encouraged us to add to some of our holdings such as Hollywood Bowland Gym Group. We have also opened new positions in Begbies Traynor, John Laing and Judges Scientific. After a strong run, we have reduced our holding in Learning Technologies Group and DotDigital. We closed our position in Cranswick.



The VCT outperformed the comparator index by 4.3%, falling by 1.5% over the period versus a fall of 5.8% for the index. AB Dynamics and Learning Technologies were particularly strong performers, leading us to take some profits. Other notable outperformers included Hardide, which at long last gained its first commercial supply contract in the aerospace sector, having been selected to coat wing components on the Airbus A330, and Ixico, which rose sharply following a positive trading update. On the negative side Block Energy has given up much of its strong performance from earlier in the year, as the production rate from its first well in the West Rustavi block has thus far been disappointing. A second well is currently underway. We made a new qualifying investment in Intelligent Ultrasound as we took part in a fundraising that will enable the company to develop and commercialise its range of next-generation ultrasound products. The company appears to be at an inflection point given that it has signed its first licensing agreement for its software with one of the world’s top three ultrasound equipment manufacturers. We sold out of our holding of MirriAd Advertising following a series of disappointments against our expectations.