Marlborough SPECIAL SITUATIONS FUND
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MARLBOROUGH SPECIAL SITUATIONS FUND INTERIM REPORT AND UNAUDITED FINANCIAL STATEMENTS for the six month period ended 20 June 2019 MARLBOROUGH SPECIAL SITUATIONS FUND Authorised Fund Manager and Registrar Marlborough Fund Managers Ltd Marlborough House 59 Chorley New Road Bolton BL1 4QP Investor Support: (0808) 145 2500 (FREEPHONE) Authorised and regulated by the Financial Conduct Authority. Trustee HSBC Bank plc 8 Canada Square London E14 5HQ Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Investment Adviser Hargreave Hale Limited Talisman House Boardmans Way Blackpool Lancashire FY4 5FY Authorised and regulated by the Financial Conduct Authority. Auditor Barlow Andrews LLP Carlyle House 78 Chorley New Road Bolton BL1 4BY Directors of Marlborough Fund Managers Ltd Andrew Staley Chairman Nicholas F J Cooling Deputy Chairman Allan Hamer Joint Managing Director Wayne D Green Joint Managing Director Dom Clarke Finance Director Geoffrey Hitchin Investment Director Helen Derbyshire Director – Compliance & Risk Richard Goodall Director – Strategy & Business Development Guy Sears Non-Executive Director David Kiddie Non-Executive Director MARLBOROUGH SPECIAL SITUATIONS FUND CONTENTS PAGE AUTHORISED INVESTMENT ADVISER’S REPORT 1 AUTHORISED STATUS AND GENERAL INFORMATION 3 DIRECTORS’ STATEMENT 3 COMPARATIVE TABLE 4 SYNTHETIC RISK AND REWARD INDICATOR 5 PORTFOLIO STATEMENT 6 PORTFOLIO TRANSACTIONS 11 UNAUDITED INTERIM FINANCIAL STATEMENTS STATEMENT OF TOTAL RETURN 12 STATEMENT OF CHANGE IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 12 BALANCE SHEET 13 NOTES TO THE INTERIM FINANCIAL STATEMENTS 13 MARLBOROUGH SPECIAL SITUATIONS FUND AUTHORISED INVESTMENT ADVISER’S REPORT for the six month period ended 20 June 2019 Percentage change and sector position to 20 June 2019 Six months 1 year 3 years 5 years Since 01.07.1998* Marlborough Special Situations Fund 12.21% -7.91% 38.67% 70.79% 2975.14% Quartile Ranking** 3 3 3 2 1 * Giles Hargreave appointed as Investment Adviser 01.07.1998 (fund launched 12 July 1995). ** Based on ranking within The Investment Association UK Smaller Companies sector. External Source of Economic Data: Morningstar (class P - bid to bid, net income reinvested). Class P units first priced on 2 January 2013. In the period to that date, the past performance information for the Class A units has been used. During the half year period under review, the bid price of the ‘P’ unit class rose 12.21% from 1527.64p to 1714.24p compared to rises of 7.88% for the Small Cap index excluding investment trusts, 11.13% for the FTSE 250 and 9.84% for AIM. At the end of the period the total net asset value of the Fund, based on the bid prices of the underlying shares was £1489m including £18m in cash, spread over 190 positions. Biggest risers over the period were Future, Safecharge, Greggs, Games Workshop, JD Sports Fashion, Tarsus, AB Dynamics, Boku, and First Derivatives. Largest detractors were Mereo Biopharma, accesso Technology, Autolus Therapeutics, Redde, Just Group, Arena Events, Quixant, Scapa Group, Escape Hunt and Finsbury Food. The period saw a number of fund holdings receive takeovers approaches. BCA marketplace, the vehicle remarketing company that owns WeBuyAnyCar.com received an all cash bid from Private Equity firm TDR. WYG, the engineering services company received an all cash bid from US peer, Tetra Tech. Tarsus, the international exhibitions and business-to-business media group received an all cash bid from Private Equity firm Charterhouse. Lastly, Safecharge, the payment processing company, received an all cash bid from Canadian trade peer, Nuvei. The Fund also participated in one Initial Public Offering (IPO) in the period: Watches of Switzerland. This is the leading retailer of luxury watches in the UK with a complementary jewellery offer. Attractive characteristics of the equity thesis include: good growth, partly attributable to its strong relationship with major brands such as Rolex (which accounts for 50% of revenue); a well invested store profile; the scale advantage of having leading market positions; as well as there being no current disruption threat from the online channel. Equity markets have had a strong first half of the year. In part, this is a rebound from the difficult fourth quarter of 2018. More importantly, however, has been the unprecedented change in the United States Federal Reserve’s (Fed) rhetoric. In December 2018, the Fed signalled it would sell approximately $50bn of bonds per month to reduce its balance sheet and the market was anticipating four interest rate rises in 2019. Now, Quantitative Tightening is not occurring, and the market expects no interest rate increases. This dramatic reversal has bolstered equity markets globally. However, several political and economic uncertainties exist. The US and China trade disputes and disagreements regarding alleged currency manipulation have not yet been resolved. Escalated trade tensions have caused the IMF (International Monetary Fund), the World Bank and OECD (Organisation for Economic Cooperation and Development) each to cut their global growth estimates in 2019. A deteriorating trade outlook has been cited in each instance and the overriding concern is that tit-for-tat measures emerge. Add slowing macroeconomic indicators and an inverted yield curve in numerous countries and prospects do not augur particularly well. Markets are for now reacting positively to the prospect of the Fed reversing its prior intentions and cutting interest rates when it next moves them. However, some resolution of global trade disputes and a palatable Brexit outcome would put equity markets on firmer foundations. Giles Hargreave / Eustace Santa Barbara 4 July 2019 This report contains FTSE data. Source: FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. 1 MARLBOROUGH SPECIAL SITUATIONS FUND AUTHORISED INVESTMENT ADVISER’S REPORT for the six month period ended 20 June 2019 Distributions (pence per unit) Year 2019 Year 2018 Year 2017 Year 2016 Class A Net income paid 20 February 0.0000 0.8909 4.6674 2.3088 Net income paid 20 August 6.6680 4.4438 3.5745 2.4818 Class B Net income paid 20 February 4.2328 5.0841 8.0301 5.3267 Net income paid 20 August 11.0606 9.0002 7.4167 5.5925 Class P Net income paid 20 February 6.4490 7.1556 9.6005 6.7612 Net income paid 20 August 13.1262 11.1865 9.2533 7.1335 Portfolio changes Largest purchases Cost (£) Largest sales Proceeds (£) AB Dynamics 11,084,555 Burford Capital 26,884,286 Watches of Switzerland Group 9,519,372 Plus500 15,418,919 TT Electronics 8,786,055 Future 10,886,269 CVS Group 6,882,206 Urban&Civic 10,612,988 Spirent Communications 5,495,283 M&C Saatchi 9,792,507 Focusrite 5,440,453 FDM Group (Holdings) 8,835,004 Watkin Jones 5,210,401 Hansa Medical 8,018,824 Team17 Group 4,769,104 SANNE Group 7,652,440 First Derivatives 4,742,827 Bodycote 7,369,778 ADES International Holding 4,491,862 Faroe Petroleum 6,240,000 Other purchases 106,699,599 Other sales 104,001,071 Total purchases for the period 173,121,717 Total sales for the period 215,712,086 2 MARLBOROUGH SPECIAL SITUATIONS FUND AUTHORISED STATUS AND GENERAL INFORMATION Authorised status Marlborough Special Situations Fund (the Fund) is an authorised unit trust scheme within the meaning of the Financial Services and Markets Act 2000 and is a UCITS scheme operating under the Collective Investment Schemes Sourcebook (COLL) as issued by the Financial Conduct Authority. Investment objective The investment objective of the Fund is to provide capital growth by following a speculative policy investing in smaller companies, new issues and companies going through a difficult period but with good recovery prospects. The Fund is marketable to all retail investors. The Fund may invest in derivatives and forward transactions for the purposes of hedging only. Rights and terms attaching to each unit class Each unit of each class represents a proportional entitlement to the assets of the Fund. The allocation of income and taxation and the rights of each unit in the event the Fund is wound up are on the same proportional basis. Changes in prospectus With effect from 1 April 2019 the Fund has changed from a dual priced unit trust to a single priced unit trust and is operating a ‘swinging’ single price mechanism. Also, on that date, the initial service charge that applied to class P units was removed. An initial service charge will still be applied to class A and class B units. Details of these charges can be found in the Prospectus. Up to date Key Investor Information Documents, Prospectus and Long Reports and Financial Statements for any fund within the manager’s range can be requested by the investor at any time. DIRECTORS’ STATEMENT This report has been prepared in accordance with the requirements of the Collective Investment Schemes Sourcebook as issued and amended by the Financial Conduct Authority. ALLAN HAMER JOINT MANAGING DIRECTOR G R HITCHIN INVESTMENT DIRECTOR MARLBOROUGH FUND MANAGERS LTD 12 August 2019 3 MARLBOROUGH SPECIAL SITUATIONS FUND COMPARATIVE TABLE Income units were first offered at 50p on 12 July 1995. On 24 April 2009, all income units were converted to accumulation units on a 1:1 basis. On 16 November 2009, the units were reclassified as class A units and class B units became available for purchase.