Source - PRN


All information is at 31 July 2019 and unaudited.
Performance at month end is calculated on a cum income basis

Net asset value 2.5 4.7 -1.9 64.2 98.9
Share price -0.7 3.3 3.1 90.3 124.6
Benchmark* 0.1 -1.4 -7.4 20.0 34.2

Sources: BlackRock and Datastream

*With effect from 22 March 2018 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index replaced the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index as the Company’s benchmark. The performance of the indices have been blended to reflect this.

At month end
Net asset value capital only: 587.84p
Net asset value incl. income: 594.22p
Share price 562.00p
Discount to cum income NAV 5.4%
Net yield1: 1.8%
Total Gross assets2: £434.6m
Net market exposure as a % of net asset value3: 99.9%
Ordinary shares in issue4: 73,130,326
2018 ongoing charges (excluding performance fees)5,6: 0.6%
2018 ongoing charges ratio (including performance fees)5,6,7: 1.3%

1. Calculated using the 2019 interim dividend declared on 23 July 2019 and due to be paid on 28 August 2019, together with the 2018 final dividend declared on 12 February 2019 and paid on 28 March 2019.
2. Includes current year revenue and excludes gross exposure through contracts for difference.
3. Long exposure less short exposure as a percentage of net asset value.
4. Excluding 7,400,000 shares held in treasury.
5. Calculated as a percentage of average net assets and using expenses, excluding performance fees and interest costs for the year ended 30 November 2018.
6. With effect from 1 August 2017 the base management fee was reduced from 0.70% to 0.35% of gross assets per annum.
7. Effective 1st December 2017 the annual performance fee is calculated using performance data on an annualised rolling two year basis (previously, one year) and the maximum annual performance fee payable is effectively reduced to 0.90% of two year rolling average month end gross assets (from 1% of average annual gross assets over one year). Additionally, the Company now accrues this fee at a rate of 15% of outperformance (previously 10%). The maximum annual total management fees (comprising the base management fee of 0.35% and a potential performance fee of 0.90%) are therefore 1.25% of average month end gross assets on a two year rolling basis (from 1.70% of average annual gross assets).

Sector Weightings % of Total Assets
Consumer Services 30.0
Industrials 22.4
Financials 21.0
Consumer Goods 8.3
Health Care 7.4
Technology 6.7
Basic Materials 1.6
Telecommunications 1.3
Net current assets                                 1.3
Total 100.0


Market Exposure (Quarterly)
Long 119.4 103.7 108.7 113.7
Short 9.6 10.5 14.9 13.2
Gross exposure 129.0 114.2 123.6 126.9
Net exposure 109.8 93.2 93.8 100.5


Ten Largest Investments
Company % of Total Gross Assets
4imprint Group 3.1
Dechra Pharmaceuticals 3.1
YouGov 2.9
SSP 2.9
JD Sports Fashion 2.9
IntegraFin 2.7
Serco 2.5
Watches of Switzerland 2.4
Aveva 2.3
Bodycote 2.2

Commenting on the markets, Dan Whitestone, representing the Investment Manager noted:

During July the Company’s NAV per share rose by 2.5%1 to 594.22p on a cum income basis, outperforming our benchmark index, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which rose by 0.1%1. The long book generated 2.4%1 and the short book generated 0.3%1 of gross performance.

This was a strong month for the Company in absolute and relative terms, particularly in the context of a flattish month for our benchmark. It was also a month where both the long and short books made a positive contribution to the Company’s overall monthly returns.

The largest positive contributor to performance during the month came from one of our biggest holdings, JD Sports. The shares rose in response to a strong trading statement issued in early July, confirming trading has remained strong throughout the period and that the company “continues to be on track to deliver headline profit before tax for the full year at least equal to current consensus expectations”. As discussed in previous updates, this differentiated consumer proposition has consistently delivered despite a difficult UK consumer backdrop, reflecting the strength of its management, its business model and growth opportunities.

The second biggest contributor was from Chegg, one of our US listed holdings, which delivered positive results for the second quarter of 2019 which beat expectations; the company also raised their full-year guidance. We view Chegg as a fast growing, differentiated and disruptive direct-to-consumer student learning platform, focused on providing third party study resources through a subscription-based model. This result re-emphasised in our mind the long runway of growth that we think lies ahead for this company, both domestically in the US and internationally, to drive subscriptions as well as the levers that management has to pull to improve monetisation.

The third biggest contributor was from another core holding, YouGov, which delivered an upgrade to consensus forecasts. We’ve spoken a lot about this company in previous updates so I’ll refrain from writing more, but suffice to say we are encouraged by the update and continue to be impressed with the company’s management and their sustained level of high revenue and profit growth.

The short book had a strong month, with the biggest contributor coming from a luxury car manufacturer which fell sharply in response to a material profit warning and increasing concerns over the company’s financial structure.

Turning our attention to what hasn’t been so successful for us in the month, the top 10 detractors individually cost the Company somewhere in the range of 0.1% to 0.3%, unhelpful but not material. It is also worth noting that four of the top 10 detractors were shares in our benchmark that the Company does not own, namely EI Group, Energean Oil & Gas, Ultra Electronics and Acacia Mining. The top 2 detractors were both long positions, namely Bodycote and Robert Walters. Bodycote delivered first half of 2019 numbers which were soft overall, reflecting weakness in some of their end markets, though the highest quality and highest margins areas performed well in our opinion, and Management are comfortable with full-year expectations. Clearly the share prices of Bodycote and other global cyclicals are particularly sensitive right now to any update on currency and/or trade, but we think Bodycote remains a well-capitalised differentiated industrial. The third biggest detractor during the month was not owning Enterprise Inns, which holds a decent sized position in our benchmark, and was on the receiving end of a bid.

In summary, July was a strong month for the Company with both longs and shorts delivering positive returns, and where stock specifics triumphed over macro. Escalating trade tensions clearly present a risk to global growth and potentially to stock markets, but we feel well positioned to deliver a good investment outcome whatever happens next. Global cyclical exposure in the long book has been moderated in recent weeks (despite many structural trends that benefit our long positions) and our long book is comprised of many advantaged business models with robust finances. The pace of industry change isn’t slowing and multi-year secular trends, like the need for corporates to invest in digital transformation, shows no signs of slowing and benefits many of our holdings. On the flip side we remain short financial leverage and continue to identify lots of opportunities to short commoditised business with weakening demand, as well structurally flawed business models who we believe will be the first and real victims of any global slowdown. We continue to operate with a lower than average net exposure to the market of 99.9%.

1Source: BlackRock as at 31 July 2019

14 August 2019


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