16 February 2021
January can be an odd month for investor sentiment. It tends to be dominated by new year hopes and expectations, despite the fact it is just another month within an ever-rolling twelve-month horizon. 2021 has certainly started with fluctuating moods. It began with a strong risk appetite which saw market gains and a continued rotation from premium growth stocks into cyclical value plays. This was driven mainly by reflation prospects from a new US administration with a proposed £1.9 trillion stimulus plan, plus encouraging news about the global fight against coronavirus. This momentum dissipated over the rest of January, as the market came to terms with the impact of the latest global lockdowns and restrictions and the further downward pressure on GDP they would cause. In the final week, there was an extreme bout of risk aversion as a US retail investor squeeze on shorted stocks caused rapid unwinding of hedge fund positions, which had ripple effects in the UK.
Overall, these factors left larger companies down for the month, whilst small cap and AIM stocks held onto gains driven by positive earnings news in high growth sectors. We still believe there will be a recovery over the course of the year ahead if vaccinations continue to be rolled out and new virus variants are dealt with. This should foster synchronised global growth, with some early indications of this being inflation in commodity prices, shortages of semiconductors, and rising bond yields.
The fund gained 2.5% in the month, compared to a benchmark rise of 0.7%. Year on year, the fund is up 12.8% against a benchmark uplift of 7.9%. Healthcare continued to be a major contributor to performance with strong gains from kidney disease diagnostic specialist Renalytix, clinical provider Sensyne, and gene based therapeutics developer Maxcyte. In each case the companies updated the market with positive trading and product news. Other performers included asset manager River & Mercantile on news of the appointment of Martin Gilbert as Deputy Chairman, with his background in sector M&A; and RWS as analysts reinstated research coverage following its merger with SDL. Detractors from performance included foreign exchange services provider Argentex which announced its CEO was taking leave of absence for health reasons; textile chemicals specialist HeiQ, which saw profit taking after its shares became overbought following a very successful listing in December; and holiday operator Jet2, which was volatile as further travel restrictions were announced.
A new position was taken in IP Group, the early stage investor in healthcare, cleantech and technology companies, where enhanced future investment prospects contrast with a longer term underperformance of the shares and a decent discount to Net Asset Value.
The fund gained 1.2% in the month compared to a benchmark rise of 0.9%. Healthcare continued to be a major contributor to performance with strong gains from gene based therapeutics developer MaxCyte; medical-imaging technology specialist Polarean; infection control products supplier Tristel; liquid biopsy circulating tumour cell (“CTC”) analytics developer Angle; and kidney transplant diagnostic company Verici. Solid state battery developer Ilika also rose strongly. The only major news involved a trading update from MaxCyte, anticipating 2020 revenue growth of 20% which is ahead of market expectations, plus progress towards a Nasdaq dual listing; and also from Angle which published independent research supporting the unique capabilities of its Parsortix CTC platform. Detractors from performance included sustainable fuels technology company Velocys, which announced the withdrawal of Shell from its Immingham plant project, although this will continue with British Airways still involved whilst a new partner is sought. Digital training specialist Learning Technologies announced flat results caused by the coronavirus impact, but recent sales momentum is increasing and the company has significant cash resources to continue making acquisitions. Neuroscience AI specialist IXICO was also weak despite recent positive contract news.
The only portfolio activity in the month saw some gains being taken in Ilika after its recent exceptional performance. The company is still in the process of scaling up its manufacturing capability.