Fund Commentary Threadneedle Uk Mid 250 Fund
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COVERING FEBRUARY 2021 FUND COMMENTARY THREADNEEDLE UK MID 250 FUND Summary UK mid-cap stocks performed well in February. Gross of fees, the fund modestly underperformed its benchmark – the FTSE 250 ex-IT (ICB) index – over the month. Much of the underperformance was due to the absence of some strong performers, such as Virgin Money, easyJet and TUI. Outperformers included Cineworld and SSP. We participated in the initial public offerings (IPOs) of Moonpig and Auction James Thorne Technology. Co-Fund Manager Market Background The FTSE 250 ex-IT (ICB) index returned 4.6% in February, outperforming the FTSE All-Share, which was up 1.9%. UK equities were boosted by optimism around the successful roll-out of the country’s vaccination programme, with around 20 million people having received their first doses by the end of the month. Together with falling Covid-19 cases in the UK, this raised expectations of a return to ‘normality’ by mid-summer, and hence, a swifter economic recovery. However, global markets swold off later in the month as bond yields rose on worries that a rebound in the world economy Craig Adey may increase inflation and thereby lead to central banks reining in their Co-Fund Manager accommodative measures. The prospects for economic reopening helped to lift the pound, as did indications that the Bank of England would be unlikely to adopt negative interest rates in the near future. The currency’s rise was a further boost for UK small caps. On the economic front, the UK’s GDP rose by a stronger-than-expected 1% in Q4. For 2020 as a whole, however, GDP was down by a record 9.9%, as repeated lockdowns and other restrictions took their toll on the economy. Meanwhile, UK inflation moved slightly higher in January, and some economists predicted that it would exceed the Bank of England’s 2% target later in 2021. More positively, the composite purchasing managers’ index rebounded to the verge of expansionary territory in February, reflecting optimism about the potential for a recovery. Consumer sentiment also improved during the month, rising to its highest since last March as measured by an index compiled by GfK. Performance Gross of fees, the fund returned 4.4% in February and modestly underperformed the FTSE 250 ex-IT (ICB) index. Much of the underperformance was due to the absence of some strong performers. Examples included Virgin Money, easyJet and TUI. Virgin Money reported a quarterly profit for the first time in three years, while easyJet and TUI benefited from hopes that vaccines would spur a recovery in travel and tourism. FOR INVESTMENT PROFESSIONAL USE ONLY 1 Issued March 2021 | Valid to end June 2021 FUND COMMENTARY | FEBRUARY 2021 The holding in S4 was unhelpful too. Following a period of strong returns, the stock underperformed owing to the wider market rotation out of quality growth. Nevertheless, our investment thesis remains intact. S4 is making selected acquisitions and its slender cost base enables the firm to offer its services at much lower prices than the big-name traditional players. Positive contributors included Cineworld, SSP and Future. Cineworld and SSP benefited from vaccine- related optimism. Future’s management announced that profits for its current fiscal year could be well ahead of forecasts. The company also expressed optimism about its integration of TI Media – acquired last April – and has now completed the acquisition of GoCo. Future is strengthening its presence in e-commerce and also progressing well in transitioning from print to digital media. Our new position in online card and gift retailer Moonpig also added value; shares surged following its successful IPO. Activity We participated in the IPOs of Moonpig and Auction Technology Group. Moonpig has a dominant presence in the UK and the Netherlands. The business has reached an inflection point; we believe that growth can now accelerate due to technology and the leveraging of marketing costs. Moonpig is an exceptionally high-return business with very little demand on capital. Auction Technology offers a well-invested marketplace technology platform for auctions across both the industrial and collectables sectors. The company is expanding its global presence and is also benefiting from the ongoing shift to online auctions that has accelerated as a result of Covid-19. We also initiated a position in market research and data analytics firm YouGov. We have monitored the stock for a long time, when it was in the small-cap space; the market cap now exceeds £1bn. YouGov’s consumer data and market-research platform continues to gain scale globally, and we are excited by new data product launches and the growing customer pipeline. The stock’s de-rating, amid a rotation away from these names over the last six months, provided an attractive entry point. We continued to build our holdings in Jet2 and HomeServe, which were added to the portfolio in January. We sold AFH Financial ahead of the company’s takeover. We also exited Vistry. Outlook While the immediate economic outlook associated with renewed lockdowns has deteriorated somewhat, the announcement of a number of vaccines has buoyed hopes of a swifter economic recovery. Meanwhile, the Brexit deal should remove a large part of the uncertainty that has weighed on UK equities in recent years. That said, we expect the return to pre-crisis rates of growth to be slow. In particular, there are headwinds for the consumption sector, a significant contributor to the UK’s GDP, while Brexit is still likely to result in some frictional trade costs. Nevertheless, we believe there are positive drivers for small caps. High-quality businesses are likely to emerge from the crisis even stronger. We also see attractive prospects for businesses perceived to have too much debt at a headline level, but which have strong liquidity and the ability to cut costs. Finally, we feel that the share prices of certain companies seem to be discounting significant future equity raising. We are monitoring companies closely, and rigorously adhering to our philosophy and process to seek out favoured stocks. FOR INVESTMENT PROFESSIONAL USE ONLY 2 Issued March 2021 | Valid to end June 2021 FUND COMMENTARY | FEBRUARY 2021 Important information For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients) This is an advertising document. Past performance is not a guide to future performance. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. Your capital is at risk. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Threadneedle Specialist Investment Funds ICVC (“TSIF”) is an open-ended investment company structured as an umbrella company, incorporated in England and Wales, authorised and regulated in the UK by the Financial Conduct Authority (FCA) as a Non- UCITS scheme. Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents are available in English only and may be obtained free of charge on request from Columbia Threadneedle Investments at PO Box 10033, Chelmsford, Essex CM99 2AL For Swiss investors: Subscriptions to a Fund may only be made on the basis of the current Prospectus and the Key Investor Information Document, as well as the latest annual or interim reports and the applicable terms & conditions. Please refer to the ‘Risk Factors’ section of the Prospectus for all risks applicable to investing in any fund and specifically this Fund. The above documents and the instrument of incorporation are available on request from our representative and Paying Agent in Switzerland, BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16,CH-8002 Zurich. Shares in the Funds may not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any “U.S. Person”, as defined in Regulation S under the 1933 Act. The analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. Issued by Threadneedle Investment Services Limited. Registered in England and Wales, Registered No. 3701768, Cannon Place, 78 Cannon Street London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. Benchmark Index is the FTSE 250 (ex IT). Performance attribution source FactSet, calculated using a daily time-weighted methodology based on gross returns as at global close on the last working day of the month. columbiathreadneedle.com FOR INVESTMENT PROFESSIONAL USE ONLY 2 Issued March 2021 | Valid to end June 2021 .