15 September 2020
The UK market continued its recovery in August, although for the calendar year to date it has lagged behind the stronger rebounds seen in Europe and the US. Two other UK features are noteworthy. Firstly, the significant outperformance of AIM stocks, which are now in positive territory for 2020 as compared to a main market decline of around 20%; and secondly, the dispersion in valuation between the most expensive and cheapest stocks, which has become the widest since the dot com era - in other words, expensive gets more expensive, and cheap gets cheaper. This reflects a pandemic driven sentiment amongst investors, who continue to favour companies exposed to newer growth areas, such as healthcare, technology, data communications, and other aspects of the online economy, which are expected to dominate into the future. AIM has a high proportion of such companies.Traditional products and services, however, continue to languish as concern about the near term outlook for the UK economy weighs heavily. A lot of this trend is momentum driven, and the recent volatility in the US NASDAQ shows the dangers of a change in direction.
The fund gained 6.2% for the month, keeping pace with a benchmark rise of 6.3%. The strongest contributor was SDL, the translation and content management services provider, which was acquired at a substantial premium by peer RWS (also a portfolio holding). The combination of SDL’s technology with RWS’s market reach and management, was taken well by the market. Maxcyte, the cell based therapeutics company, also performed strongly as it announced the expansion of a first-in-human Phase I trial of MCYM11, its lead drug candidate. Waste-toenergy gasification technology specialist, Eqtec, announced an equipment sale and service contract for Greece’s first project plant. Buy-to-let mortgage specialist OneSavings Bank, and power controls supplier XP Power, responded to robust first half trading results. The main detractors from performance were IG Design, the giftware supplier, and Manolete, the insolvency litigation specialist, despite no trading news. Pharmaceuticals group Clinigen, and mining royalties manager Anglo Pacific, were also weak after recent poorer updates, whilst corporate recovery practitioner Begbies Traynor suffered from an overhanging sale by an investor which has now been cleared. During the month the fund participated in a placing by renewable electricity generator SIMEC Atlantis, which raised funds to convert a redundant Welsh coal fired power station into using its unique wood/paper/plastic waste gasification technology.
The fund significantly outperformed during the month with a gain of 10.8% versus a benchmark rise of 7.6%. Major outperformers were computer game developer Frontier Developments, outsourced gaming services provider Keywords Studios, and neurological data analytics specialist Ixico, each of which announced strong trading. Also contributing were e-learning and HR management software specialist Learning Technologies, and medical imaging drug-device developer Polarean Imaging, following recent positive updates. Underperformers were primarily healthcare stocks which saw some profit-taking after strong performance. These included Fusion Antibodies, the antibody development specialist; Creo Medical, the surgical endoscopy device developer; Synairgen, the respiratory drug developer; and Amryt Pharmaceuticals, the rare disease drug specialist. In early September, Amryt has announced positive Phase 3 trial results for its treatment of a genetic skin disorder, Epidermolysis Bullosa. During the month one new qualifying investment was made via a placing for digital music rights aggregator, publisher and distributor, One Media iP. The proceeds will be used to licence content which they can suitably enhance and place onto their digital content distribution platform.