Market Commentary - Dec 2020

15 January 2021

Posted by Gareth Blades on 15/Jan/2021

December was dominated by Covid-19 headlines as the vaccine rollout commenced and the first patient received their initial dose of the Pfizer vaccine on the 8th December. By the end of the month about 950,000 people in the highest risk groups across the UK had been vaccinated. The UK’s vaccination strategy is to protect the most vulnerable first, and numerous studies have pointed to age being the single most important factor in Covid-19 mortality. The AZ-Oxford vaccine was approved at the tail end of the month. Combining the on-order supply of the Pfizer, Moderna and AZ-Oxford vaccines provides two doses for every adult in the UK.

The start of the immunisation programme provided perhaps the only bright spot in the Covid-19 coverage. As Covid-19 cases accelerated further during December, pressure from public health experts, the NHS and scientists reversed the government’s plan to relax restrictions over the Christmas period. The discovery of a more transmissible Covid-19 lineage in October, became an urgent concern. Models suggested that VOC-202012/01 was associated with an increase in R of up to 70% compared to current non-VOC lineages. VOC-202012/01 became the dominant strain in the South East of England and was detected in all the home nations as well as in North and South America, Europe, the Middle East and Australasia.

The discovery of a new Covid-19 lineage is not itself troubling, for example the Covid-19 Genomics UK Consortium (COG-UK), that sequences around 10% of PCR positive cases, has found 276 separate Covid-19 lineages in Scotland from 1st March to 1st April alone. Only about a quarter of these lineages subsequently became established within the population, thus the vast majority do not survive long enough to establish chains of transmission. What is of concern is the apparent effect on transmissibility.

It should be said that of all the pandemic initiatives that have been touted as “world-beating” but fallen short, COG-UK is a notable exception that has flown below the radar. By 1st October 2020 more than 100,000 Covid-19 genomes had been shared online, roughly half of these were from UK infections. The only reason the UK identified VOC-202012/01 and can analyse different lineages, their spread and effect is due to COG-UK. Having this data is essential in understanding the changing epidemiological and genomic dynamics of Covid-19 in the UK.

After a long period of extensions, the EU and UK agreed a trade deal on 24th December. The deal provides tariff-free trade on most goods and a platform for future co-operation. However, leaving the single market will increase trade frictions with the EU and this will impact many areas of the economy in ways that will not become clear for some time. Negotiators did not agree equivalence on conformity assessment for manufacturing, so UK producers need to fulfil both sets of standards and regulations. No-longer being part of the European Chemicals Agency (ECHA) is likely to cause significant problems for manufacturers with no obvious solution in sight. Equally having to document the origin of all components to work out whether tariffs will apply is complex and expensive. In addition, little has been done for the service side of the economy. It is likely that due to symmetric provisions of protection against unfair competition the UK and EU will remain aligned on labour rights, environmental policy and state aid rules. Key to the government in this regard was that the rebalancing mechanism does not involve the European Court of Justice or EU Law. Although leaving the single market will cause many problems, the deal is a psychological boon removing the inherent uncertainty of the last four years especially when juxtaposed with the cliff edge of no-deal.


TB Amati UK Smaller Companies Fund

In December the Smaller Companies Fund rose 10.04%, leading the benchmark which returned 8.41%. Positive contributors in the month included newly listed HeiQ, which rose 61%. HeiQ is a Swiss based textile technology company that creates high-performance innovative fabrics and textile coatings. It is an IP rich business with a proven ability to turn innovation into commercial products. The innovation that has caught the market’s attention is a long lasting anti-viral/anti-bacterial coating – Virobloc – that kills pathogens on contact. Originally developed during the Ebola outbreak, Virobloc is being applied to face masks and other coverings. Inspecs continued its November rally into December, returning 24%. Eqtec rose 201% during a month of positive announcements for the gasification technology and project management company. The company announced agreements to acquire two project sites for deployment of its technology that would significantly reduce the environmental impact of these projects.

Negative performers included RWS, falling 6% in the month. RWS completed an all-share merger with SDL in November. Technical share selling weighed on both names after the initial post-announcement rally. The RWS end-of-year trading statement struck a typically cautious tone about market outlook and cost saving synergies of the merger.

During the month we sold the gold mining company Centamin to make space for gold and silver miner Hochschild Mining, which had sold off following a large share sale by the chairman. Both companies have significant production, but we see better exploration upside and optionality from new projects in Hochschild. We also made a new investment in fund manager Polar Capital. Polar has an impressive range of funds, 91% of which, by AUM, have been first quartile performers over 3 years.

We also participated in a NASDAQ fundraising for dual listed Amryt Pharmaceuticals. The company develops and markets drugs for rare diseases. This year the company has performed exceptionally in a tough environment; integrating the assets of Aegerion that it acquired at the end of 2019, aggressively growing its sales and successfully completing a Phase 3 trial in Epidermolysis Bullosa, another rare disease. Amryt is generally thinly traded, thus participating in the US transaction allowed us to increase our weighting in this high performing but underrated company.



The VCT rose 14.43% in the month against a benchmark appreciation of 9.5%. Contributors to this performance included Ilika, a leading solid-state battery developer. The stock traded on no news in December but is a beneficiary of the Government’s green agenda and the shift to low/no carbon energy. Ilika has battery development projects across medical devices and consumer products as well as automotive and industrial sensors. In 2021 the company will install a large-scale battery fabrication line for its micro batteries, meeting commercial demand for these. Keywords Studios rose 25% in the month, announcing three acquisitions in quick succession. Similarly, Learning Technologies Group acquired eThink and JCA Solutions, rising 32%. On the negative side, Ixico fell back by 14% in December after rising to an annual high in November and announcing another year of record results at the beginning of December.

We made a new qualifying investment in Rua Life Sciences, the company owns Elast-Eon, a biostable polymer for use in medical devices. Elast-Eon has been used in 6.3m long-term cardiovascular implants and has never had a failure. This is compared to bio-prosthetic products that need to be replaced after 10-12 years. Rua Life Sciences raised money to progress development of their own patches and grafts for coronary aorta and other large blood vessel failures and/ or blockages associated with heart disease. A FDA submission for these is expected in the first half of 2021, opening up the possibility of approval by the end of 2021 and first partner sales in early 2022. A second higher value programme for aortic valve replacement is also in development, and success here may well attract the attention of major players in the space.