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Time, Relentless Time

Somehow we are already into the second half of 2021. Where did those past six months go? Even more incredibly, it’s been five years already since the UK voted to leave the EU.

Time slipped by, but performance in the second quarter of 2021 was pleasing. On average, portfolios were up +12.0% in the past three months, taking the year-to-date return to +16.9%, which is 6.4% better than our index. Encouragingly, that performance was driven by multiple stocks. To pick out but a few, Impax Asset Management has continued to rapidly pick up new sustainable investment mandates; Volex reports huge demand for its data centre and electric vehicle cables, and the accelerating growth of digital marketing has been to Next15’s benefit.

In each of these there are identifiable ‘structural growth’ trends that should outpace general GDP growth. Yet growth alone is not enough. Ask the solar industry: photovoltaics have seen almost exponential growth in the past three decades, though that hasn’t stopped many manufacturers facing financial ruin. So we spend a lot of time thinking about structural growth, but even more time ensuring there is a business model that will reliably translate that growth into shareholder returns.

The long tail of the pandemic is though still a trip hazard. Our biggest disappointment this quarter was Clinigen, a healthcare business, which warned COVID-19 is still discouraging people from seeking cancer diagnoses and receiving treatment. Clearly that presents much wider public health issues than merely the fortunes of this one AIM stock. Yet the result is that Clinigen’s profits will be lighter than we had hoped this year (albeit with a recovery due as our lives normalize).

The wider challenge for businesses is on cost inflation. The price of shipping, for example, at one point had risen ten-fold, while the lack of semi-conductors risks halting car and smartphone production lines. Demand is far stronger than expected at the same time as COVID-19 has upset and constrained supply chains. It will take time for the post-pandemic economy to rebalance and, as ever, some businesses are much better placed to manage those pressures than others.

Overall though, it’s been a good time to be invested in smaller UK companies. Time is relentless, but with it those heavy clouds of Corbynism, Brexit and COVID — which, each in turn, had kept investors awake at night — are finally now abating.

You can read the rest of the AIM Service Q2 2021 Investors’ Report here.

Methodology and source: Hawksmoor Research, as at the date of this report. Performance is quoted on a total return basis, net of a 1.5%+VAT Annual Management Charge and based on a portfolio of 25 equally weighted stocks typical of those bought for clients within the Hawksmoor AIM Portfolio Service. Actual market prices paid may have been materially different than that illustrated, and thus the returns of an actual portfolio may have differed over the period. Past performance is not a guide to future performance.

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