Market Commentary - September 2019

16 October 2019

Posted by David Stevenson on 16 Oct 2019

September saw the UK market recover some lost ground after August’s sharp sell-off. Beyond a technical bounce, it is difficult to identify the catalysts for this, amidst the ongoing uninspiring economic and political news. In the UK, the recent Purchasing Manager Index (“PMI”) data, which represents a monthly survey of the views of supply chain managers across a broad range of sectors, indicated weakness not only in manufacturing and construction - a recent regular feature - but also in services. An index above 50 indicates growth in output, whilst a figure below 50 points to contraction. The September services PMI fell to 49.5, only the fifth time in over a decade that it has been below 50. This is significant as services account for around 70% of the UK economy. Until this point, service sector activity had been maintaining the composite PMI for the whole UK economy above 50, offsetting a contraction in manufacturing and construction output. Whilst Brexit uncertainty is being blamed in the UK, manufacturing PMIs have also been falling globally due to the effects of tariff disruption, and are now below 50 in the US, China and the Eurozone. This has caused stocks with high international earnings to underperform at the same time as stocks with high domestic earnings, in the recent UK market volatility. Whilst fund managers are unlikely to receive much sympathy from investors, this pattern does make stock picking a little bit trickier. The September bounce has also been led by lower rated value stocks, with investor appetite for previously outperforming growth stocks noticeably weaker. This shift has had an impact on AIM, which has continued to lag the progress made by the main market.


TB Amati UK Smaller Companies Fund

The fund gained 1.4% in the month, broadly in line with its benchmark rise of 1.5%. Contributors to performance included One Savings Bank, as it progressed towards its acquisition of competitor Charter Court, creating a combined entity with significant share of the UK Buy to Let and mortgage markets; insolvency litigation finance specialist, Manolete Partners, which provided another positive trading update on its caseload; music and audio technology developer, Focusrite, which reported revenues and EBITDA ahead of market expectations; and telecoms technology provider, Spirent, which continued its recent share price momentum. Detractors included gaming technology supplier Quixant, which warned about lower than expected orders, particularly in Australia, as their customers experienced competitive pressures; video gaming outsourcer, Keywords, which announced that investment in capacity to meet demand would impact margins; automotive engineer, AB Dynamics, which saw some profit taking; and meter installer, Smart Metering, which announced another disappointing update, following which the position was sold.



The VCT fell 5.3% in the month against a benchmark gain of 0.3%, giving back some of its recent outperformance. Positive contributions from US hospital billing software provider Craneware, as it rebounded from recent weakness; and women’s fashion retailer, Sosandar, which updated on its growth plans; were overshadowed by significant weakness in a number of holdings. Automotive engineer AB Dynamics, suffered profit taking after its strong run; video gaming outsourcer, Keywords, announced that investment in capacity to meet demand would impact its margins; gaming technology supplier Quixantwarned about lower than expected orders, particularly in Australia, as their customers experienced competitive pressures; and Georgian oil and gas explorer, Block Energy, announced water ingress problems as it brought its first well into production. A new investment was made during the month in Software as a Service (“SaaS”) telecoms product provider Cloudcall. Focusing on the recruitment sector, Cloudcall has partnered with the market leader for CRM systems in that space, Bullhorn, to develop an integrated offering. This has helped drive a compound growth in sales of 35% over the last three years to a forecast c£12m in 2019. Future opportunities include geographic expansion and entry to other vertical markets.