16 December 2020
In a year made up of extraordinary months, November excelled. Hopefully when historians write about this remarkable period in our history, 9th November 2020 will mark a significant turning point, the day when the Pfizer BioNTech Phase III vaccine results were announced and showed a 90% efficacy. Positive trial data from the other front runners, Moderna and AstraZeneca, followed. Whilst the longevity of the protection is still not assured and the rollout will be lengthy and costly, we can feel fairly sure that an effective vaccination programme is both possible and imminent. There is an end in sight to the dreadful health and economic cost of COVID-19.
The reaction in the markets was predictably sharp. US bond yields rose, gold fell, equities rallied. ‘Stay at home’ COVID stock baskets lost ground and many value stocks jumped. Asset allocators saw that the UK indices, bar the Alternative Investment Market, had lagged their international counterparts, and UK fund flows increased. However, the spectre of Brexit still concerns many investors.
The Smaller Companies Fund rose by 9.7%, lagging the wider index which was up 11.1%.
Both primary and secondary share issuance has increased and the month has been a busy one for many of our holdings. The eyewear company Inspecs announced a significant fundraise (around 50% of issued share capital) to fund an earnings enhancing acquisition of Eschenbach, a supplier and distributor of frames in Europe and the US. We participated in the raise, and the market took it well and the shares rallied from a 210p placing price to 265p.
The vaccine news boosted cyclical holdings in the portfolio and Jet2 was the most significant contributor to performance over November, rising 70%. The Pebble Group rose over 50% after issuing reassuring numbers, particularly noting a better than expected recovery in Brand Addition, their promotional product service for enterprise level companies such as Google and Michelin.
One Savings Bank, Countryside Properties and industrials participated in the rally too, as well as old and ‘new’ energy stocks. Eqtec was the biggest riser over the month, up 77%, and Simec Atlantis rose a third.
Synairgen led the underperformers in the month. Before the end of the year the company is due to start a 900-patient Phase III trial of SNG-001 as a Covid-19 treatment. This follows a promising placebo controlled Phase II study. The share price continued its downward journey after its October 15th funding round as it became apparent that an emergency use approval would not be granted before the successful completion of the Phase III trial. The news of the vaccine led to additional downward pressure on the name. Centamin also continued to sell off in anticipation of a new mine plan being announced in early December.
We added to existing holdings in Air Partner, CLS and other names that will participate in the global recovery we anticipate next year when economies unlock. We are keen to increase exposure outside the UK. Additionally, we participated in a fund raise by Touchstone Exploration to fund three gas wells in Trinidad.
The VCT rose 1.3%, sharply underperforming the benchmark which was up 10.2%. Year to date, however, the VCT is up 19.0% against the benchmark up 9.0%.
Underperformers for the month included Synairgen, which is due to start a 900 patient Phase III trial by the end of the year to establish the efficacy of SNG-001 as a treatment for mild-to-moderate Covid-19. The share price continued its downward journey after its October 15th funding round as it became apparent that an emergency use approval would not be granted before the successful completion of the Phase III trial. The news of the vaccine led to additional downward pressure on the name. Polarean Imaging fell 11%, which had a material effect on our performance given its significant weighting in the portfolio. LoopUp issued another profit warning, as it failed to capture much share of the video conferencing market outside of its professional services clients. Zoom and Teams have dominated a market that has grown several-fold under lockdown.
Our holding in the Amati UK Smaller Companies Fund provided broad-based exposure to the rally in stockmarkets, and rose over 9%. Ilika and Velocys benefited from the continued interest in green technology.
Whilst we didn’t transact on any new deals over the month, we are continuing to look at a good number of qualifying investment opportunities, and the vaccine news is likely to raise confidence for companies considering listing on the AIternative Investment Market.