Fund manager August commentary – Lowland Investment Company
2 minute read
The UK equity market continued to modestly recover during August, with small and medium sized companies (as measured by AIM and the FTSE 250 index respectively) outperforming larger companies (as measured by the FTSE 100). As parts of the domestic economy re-open following ‘lockdown’, early signs are that trading activity is recovering in a number of areas. Small and medium sized companies are, on average, more domestic in exposure and this may help to explain part of the outperformance. In many cases when companies are reporting second quarter earnings and updating on trading, trading in July and August has returned to similar levels to 2019. While it is too early to say whether this trend is sustainable, it is encouraging nonetheless.
Among the best performing stocks in August were two of the earlier stage companies held (4D Pharma and Simec Atlantis) following positive news. 4D Pharma, an early stage drug development company, reported encouraging efficacy results from one of its products used in late stage cancer patients in combination with an existing immunotherapy product. While the data was in a small number of people (12 in total), it is now being moved onto a much larger trial across a range of different cancer types. Simec Atlantis, a renewable energy company, secured project financing for the first phase of its key project in Wales (converting a coal-fired power plant to one that uses waste pellets of non-recyclable plastics and paper). Their ability to secure financing for the project was a key question mark for the shares, so this represents a material milestone. Other strong performers during the month included Phoenix Group and Provident Financial, both of which reported good results relative to expectations. The largest (actively held) detractor, Somero Enterprises, makes concrete levelling equipment for use in construction predominantly in the US. It had no material news and trading volume was low (after month end the share price has recovered on an encouraging trading update and an announcement they are restarting dividend payments).
There were no new positions purchased in August, but existing positions including IP Group, Morgan Advanced Materials and Marks & Spencer were added to. These purchases were funded by reductions including XP Power (reduced on valuation grounds following strong share price performance), St Modwen (following modestly disappointing results) and exiting a small holding in Hornby.
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