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Fund manager update

  • Fund manager update
  • 3 minute read

By Sam Barton

Market in focus

April represented a strong month for UK equities, carrying on the good run at the start of 2019. The MSCI UK Index generated a total return of 2.2% and the Numis Alternative Markets Index (NAMI) posted a gain of 6.0% on a total return basis. The Service performed marginally better than NAMI on average, with the average portfolio appreciating by 6.2%. Markets were supported by consensusbeating GDP growth in the EU and the USA, a positive corporate “reporting season” and, against a backdrop of subdued inflation, further delays to interest rate normalisation. There are, however, a number of reasons that we remain cautious entering May. A year after the announcement of US tariffs, little tangible progress has been made in talks. This has held back investment, causing forward looking survey data to show signs of weakness. In the UK, the positive impact of pre-Brexit stockpiling is expected to unwind and continued uncertainty over the process continues to weigh on sentiment. With global equities having posted double-digit returns over the year to date and some indices at all-time highs, the outlook for returns is more muted.

The key contributors to performance included Flowtech Fluidpower (+27.8%), which announced good results with a focus on operational efficiencies, Van Elle (+21.5%) where a sizeable overhang of stock was cleared, while Dart Group (+17.3%) noted that its profits would beat market expectations and Fireangel Safety (+57.1%) found support after announcing a fundraising. The main detractors from performance were Nexus Infrastructure (-33.8%) which warned that variable levels of demand would impact operating margins, OPG Power Ventures (-11.5%) gave back some of its recent gains in spite of an in line trading statement, and Vertu Motors (-8.3%) fell as investors read across from a weak statement from peer, Pendragon.

Company in focus

Founded in 1991, The Character Group is the largest independent toy company based in the United Kingdom. Character designs and manufactures toys and games, many produced under licence and based on popular television, film and digital characters and distributes these products in the UK and overseas. The Group also partners on an exclusive basis with other overseas based toy producers to market and distribute their products in the UK. The Group’s longstanding cornerstone brands include Peppa Pig, Scooby Doo, Doctor Who, Fireman Sam, Stretch Armstrong and Teletubbies.

The Company has recovered strongly from the collapse of Toys R Us earlier in the year. Both the core brands (Peppa Pig, Stretch and Teletubbies) and lower priced impulse ranges have performed well. This has seen cash balances continue to accumulate, leading the Board to recommend a 21% increase in the dividend, sanction a share buyback of up to £5 million and purchase a controlling stake in PROXY, a Danish distributor, for up to £3.3 million. The business is in a very sound financial position, has an established, wellspread portfolio of licenses and customers and an experienced (if well-paid) management team. We are confident that these attributes will continued to see the Company perform well in the future.

 

Important information

This article is only intended for use by UK investment professionals and should not be distributed to or relied upon by retail clients.  Please note there is no guarantee that the CITS investment objective will be achieved. The value of investments will go up and down and clients may get back less money than they invested. Past performance is not a reliable indicator of future returns. The information contained in this document is believed to be correct but cannot be guaranteed. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

Specific information
CITS is a tailored discretionary investment portfolio management service that invests in both the Alternative Investment Market (AIM) and NEX Exchange (NEX) markets, with the benefit of major tax advantages introduced by the Chancellor of the Exchequer in his budget of March 2000. CITS is an Inheritance Tax mitigation service based on current tax law and practice. The tax treatment depends on the individual circumstances of each client and may be subject to change in the future. CITS invests in ‘qualifying shares’ in smaller companies which may be more volatile than investments in more established companies. Such companies can be subject to certain specific risks not associated with larger, more mature companies. Consequently this can make the CITS portfolios more volatile as the value of an investment may fall suddenly and substantially. CITS is considered suitable only for informed and experienced investors.

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