Interim Management Statement

Introduction

This interim management statement covers the first quarter of the 2020/21 financial year, 1 October 2020 to 31 December 2020. Investment performance measures contained in this report are calculated on a pence per share basis and include realised and unrealised gains and losses.

Investment report

The quarter started with three areas of significant concern: a contested US election result; a no deal departure from the European Union; and a winter resurgence of CV19 pandemic.  The eventual resolution to the two political risks will in time get greater attention, but for now we remain focussed on understanding and navigating the short-term consequences of the pandemic. 

The UK’s vaccination programme, further Government intervention and a trade agreement with the European Union, has allowed equity investors to look beyond the weakness in the UK economy which, despite the summer rebound, remained around 8% lower year on year in the 3 months to December 2020.  After a tricky start to the quarter, the UK’s equity markets moved materially higher through November and December.  We feel positive about the outlook for small, well managed UK companies, particularly those rich in intellectual property as the economy returns to growth later this year.

Performance

In the three months to 31 December 2020, the unaudited Net Asset Value (NAV) increased from 73.66p to 87.40p, a gain of 18.65%. During the same period, the FTSE AIM All-Share Total Return index gained 20.87%, whilst the FTSE All Share Total Return index returned +12.62%.  The qualifying investments made a net contribution of 12.37 pence per share whilst the non-qualifying investments made a smaller positive contribution of 1.70 pence per share. The adjusting balance was the net of running costs and investment income.

Qualifying Investments

Ilika was the top performing qualifying investment (+135%, +2.15 pence per share) following the successful IPO of US peer Quantumscape.  Investors noted the very sizeable valuation gap.  Like its US peer, Ilika’s large format battery is well suited to automotive applications and several years from commercial readiness.  Ilika’s miniaturised batteries for industrial IOT, consumer electronics and medical devices are more advanced and expected to move into commercial production in early 2022. Gousto (+23%, +1.08 pence per share) enjoyed another quarter of strong trading and closed 2020 with revenue growth of 114%.  Among the many positives, the successful commissioning of a second factory was an important milestone. Learning Technologies (+39%, +1.07 pence per share) shares, which have drifted in and out of favour over the years, enjoyed good support as the company raised £78m to continue its acquisition strategy and progress towards its 2022 strategic goals.  The recent trading update reported that profits and cash generation in FY20 were ahead of expectations.