Market Commentary - UK Small Cap Team, August 2021

14 September 2021

Posted by David Stevenson on 13th August 2021

Market drivers in August comprised a strange mix of some more of the same, but also many differences.  Global markets continue to make all-time highs, dips carry on being bought, M&A activity continues to feature prominently, earnings upgrades are ongoing and inflows to UK funds continue. What’s different is that global indicators of industrial activity – PMI’s - are stalling, Chinese and US GDP growth is slowing, consumer confidence is volatile (US levels have collapsed despite record excess savings), significant Delta variant outbreaks are now prevalent in many countries, and inflationary pressures are not yet easing. On the one hand investors seem concerned about a slowing macro picture, and the threat that a stimulus-driven peak is now past (with speculation about near term QE tapering), but at the same time they have been given indications by a dovish US Fed meeting at Jackson Hole of a ‘lower-for-even-longer’ rate scenario. No surprise therefore that risk appetites seem to be in a state of flux with defensives and quality growth outperforming cyclicals. Markets are now entering the dangerous month of September, with a resumption of the high levels of fundraising and IPO activity experienced before the summer lull. All in all, this may be an appropriate juncture to be more cautious about near term  market momentum.

TB Amati UK Smaller Companies Fund

The fund gained 4% for the month, compared to a benchmark rise of 4.4%. The major contributors included online ticketing and virtual queuing technology specialist Accesso, which showed continued strength following last month’s trading update indicating 2021 revenues were significantly ahead of expectations; Saietta, the developer of high efficiency, low cost electric motors for vehicle drivetrains, which continued its successful debut following the IPO last month; Spirent, the telecoms network and handset testing provider which reported good growth for the half-year; Auction Technology Group, the online auctioneer, which continued to re-rate; and Focusrite, the music and audio products supplier, which showed continued momentum following last month’s positive trading update. The main detractors included high speed data connectivity specialist, Alphawave, which fell back after a strong rally in July; Renalytix AI, the kidney disease blood test specialist, which saw profit-taking after recent strong gains; and Victorian Plumbing, the online kitchen and bathroom fittings supplier, which similarly was weak on no newsflow.

A new position was taken in Ergomed, a global contract research organisation (“CRO”) which provides clinical development and trial management services for oncology and rare disease drug programmes. The company is growing strongly both organically and through acquisition, with the US being a target market due to the high levels of trial activity and drug launches. The holding in video games developer Sumo was sold, following the bid from Chinese conglomerate Tencent, whilst positions in scientific instrument specialist Judges Scientific, and venture capital asset manager IP Group, were exited to lock-in substantial gains. 


The fund rose 3.9% in the month, beating the benchmark gain of 3.4%. A major contributor was Saietta, the developer of high efficiency, low cost electric motors for vehicle drivetrains, which continued its successful debut following IPO last month. Also showing strength was Water Intelligence, the water leak and remediation services provider which continues to rerate following last month’s trading update and successful placing to fund future growth; Frontier Developments, the video games developer which rebounded from recent weakness; and Learning Technologies, the e-learning and HR management specialist, and Keywords, the outsourced video gaming services provider, both of which recently announced strong trading updates. Underperformers were limited, and featured online women’s wear retailer, Sosandar, which gave back some of its recent bounce following results; endoscopy surgical device developer, Creo Medical, which saw some softness following a placing in the month; and infection protection and control company, Byotrol, which announced results showing strong trading in 2020, but a slowing in the current year due to physical closure of venues as lockdowns extended, plus excess inventory.

One of the fund’s long held unquoted holdings, radio frequency antennae developer and manufacturer, Antenova, was acquired in the month by electronic components specialist discoverIE, which is an existing holding in the TB Amati UK Smaller Companies Fund. Antenova’s technology is benefitting from the investment cycle in 5G data connectivity within medical and industrial markets, and the company is growing very strongly. Albeit a small holding, a significant uplift was achieved on the VCT portfolio’s carrying valuation.