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Abundant opportunities despite volatility: A year of the LF Livingbridge UK Multi Cap Income Fund

It has been quite an eventful first half of 2018 for investors in UK equities. The relative calm in markets began to break, accentuated by the continued uncertainty stemming from Brexit negotiations and the related currency volatility. Investors also had to deal with elevated inflation, tightening global financial conditions and Donald Trump’s tweet-related turbulence.

Despite all the top-down macroeconomic uncertainties, we witnessed an abundance of attractive investment opportunities. The UK smaller company sector is typically under-researched by analysts, as well as broader market participants. However, by leveraging the insights of our in-house team; comprising over 50 investment and research professionals focused on smaller companies, our LF Livingbridge UK Multi Cap Income Fund has been able to identify attractive entry points into under-the-radar companies amid volatility.


Building on the strong pedigree of our LF Livingbridge UK Micro Cap Fund, which was launched in 2009, our UK Multi Cap Income Fund leverages the best of a private equity mindset to construct a differentiated income strategy from its peers.


Launched at the end of June 2017, the Fund has delivered a return of 19% over its first year, far in excess of the 6% return for the IA UK Equity Income sector.1 This performance saw our strategy ranked 1st out of 86 funds over the same period, according to Financial Express.1


The Fund’s focus on smaller companies, with our allocation to small and mid-cap stocks at more than 80%, stands out from competitors, as most equity-based income-orientated funds are disproportionately invested in a relatively small number of large cap stocks.


This is especially important, as 55% of forecast dividends for 2018 come from just ten FTSE100 companies2 which has led to high levels of overlap and correlation across many Income Funds. Our approach ensures we have low correlation with our peers, while also offering strong diversification of income. We select companies that we believe have the scope to produce meaningful dividend growth over the life of our investment.


We have invested in a number of strongly-performing stocks over the past year, companies largely ignored by the strategies heavily exposed to the UK’s large and mega cap Income Funds. Below are four prime examples:


Impax Asset Management is a specialist investor at the forefront of capitalising on the opportunities presented by the transition to a more sustainable global economy. Founded in 1998, the company has grown rapidly in recent years, highlighted by the fact its AUM has swelled from £6.7bn to £11.8bn over the past year. Its share price has risen in excess of 114% over this period.3


Another good example is biotechnology company Bioventix, which manufactures and supplies high-affinity sheep monoclonal antibodies for the use in diagnostic applications. The business has delivered consistent profit growth, cash generation and a growing dividend over many years. We have invested in Bioventix for a number of years and our UK Multi Cap Income Fund has been a beneficiary of its more than 50% share price growth over the past 12 months.


One stock unlikely to feature in many UK equity income portfolios is Strix. This company is the world leader in kettle controls, with a 38% share of the global market. Strix was admitted to AIM in August last year at 100p per share, with its share price today climbing to in excess of 166p.4


Finally, another success story came in the form of FTSE 250 travel agent Hogg Robinson, a core holding in our Fund. Hogg Robinson saw its share price rocket by almost 50% overnight back in February, after agreeing terms for a £400m takeover by the business travel arm of American Express. Corporate travel management is a space we are extremely familiar with, thanks to our successful private equity investment in Reed & Mackay.


While many macro uncertainties remain, we believe our proven private equity experience will continue to provide us with the opportunity to unearth compelling income and growth investments (such as the stocks above) for the remainder of 2018 and beyond.

 

 

  1. Source Data: FE Analytics, LF Livingbridge UK Multi Cap Income Fund, C share class, Accumulation units, since launch 30 June 2017 to 30 June 2018. IA UK Equity Income Sector peer group performance average calculated over same period.
  2. https://www.ajbell.co.uk/sites/ajbell/files/20171215_AJBYI_Dividend_dashboard%20Q42017%20FINAL.pdf
  3. From 30th June 2017 to 30th June 2018
  4. As at 31st July

All prices stated as at Bloomberg last price