HL Select UK Growth Shares - April review

Steve Clayton - Fund Manager

4 May 2018

The UK stock market saw a strong recovery in April, driven by improved economic confidence after the USA seemed to backtrack on its threats of trade wars and a sharp bounce in energy prices helped propel commodity shares higher.

Oil shares rose by an average of 13.3%, as Brent crude oil jumped from $67 per barrel to almost $75. Larger companies delivered a stronger performance than mid-cap and smaller companies over the month, which is largely a result of the heavy representation of BP and Shell in the FTSE.

Fund performance

The fund made good progress in absolute terms, rising 4.9% over the month, but our lack of exposure to commodity producers meant that we lagged the market’s 6.4% return.

All of the difference can be attributed to commodities because a lack of energy stocks cost the fund 1.7% of performance and our nil exposure to mining cost a further 0.5% when compared with the FTSE All-Share (UK’s stock market).

Positive contributions came from technology holdings, which added 1.3% of relative performance, consumer stocks, which added 1.0% and industrials a further 0.7%.

In this month’s review we compare performance of the biggest positive and negative contributors by their relative contribution to the fund’s return* but remember these details are over a short period of time and past performance is not a guide to future returns.

*Relative contribution: The best way to explain this measure is with an example from April. BCA Marketplace went up by 17.7% in the month. Through the HL Select UK Growth Shares fund, you have a 4.2% position in this company but if you had invested in the UK Stock Market (FTSE All-Share index) instead, you would only have a 0.06% position in BCA. The difference between these weightings, multiplied by the company’s performance, is BCA’s relative contribution to your return.

Biggest positive and negative contributors

Past performance is not a guide to the future. Bloomberg 01/04/2018 – 30/04/2018

The top five positive contributors made a cumulative relative contribution of 2.6% to the fund’s performance and the top five negative holdings subtracted a cumulative 0.9%.

We were delighted and bemused in equal measure by the movement in GB Group, which soared as much as 25% on the day it released a trading statement that whilst undeniably positive, did not seemingly justify quite such euphoria. The group is delivering double digit organic growth and generating cash nicely in the process. We look forward to their next results, but feel the shares are rather up with events now.

BCA reacted well to a positive trading statement, as did Domino's Pizza. And we were glad to see new holding Rentokil make good progress after its own trading update.

Sanne Group took a knock after a placing of stock by senior managers. We did not participate, but remain happy with underlying progress at the group. Key executives retain large personal investments in the business. All the other relative losers were rather trivial in scale.

Burford Capital it seems, can do no wrong. Like Sanne, they announced strong, some would say stellar, figures in March, closely followed by a placing of shares by directors and employees. The initial dip following the placing is unwinding rapidly and the shares are now just above where they closed on results day. Burford is still our largest holding, accounting for 5% of the fund by value and although nothing is guaranteed, we remain hugely excited by its growth potential.

Past performance is not a guide to the future. Source: Lipper IM to 30/04/2018.

*Full year performance data not available

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