Factsheet Commentary : December 2020

The curtain has finally been drawn on 2020

The curtain has finally been drawn on 2020; a year most people would rather forget. While the progression of the 0 at the end of the year to a 1 is unlikely to deliver instant respite from the coronavirus induced challenges that we face, we approach 2021 with optimism. The vaccine rollout will not only provide real prevention but also a huge psychological boost. Now that the Brexit negotiations have (finally) concluded and the related uncertainty has reduced, we expect a re-rating of UK company valuations. Otherwise, we will witness takeover bids from global companies, testing the resolve of Non-Executive Directors.

There is no hiding: COVID-19 took us by surprise. The fund undertook many more changes than normal in 2020 and we exited several positions, including some core holdings, such as SimplyBiz (weak outlook for events), Churchill China (closedown of hospitality) and Johnson Service Group (collapse of business and leisure travel). We initiated positions in companies such as Open Orphan, Omega Diagnostics, Genedrive and Source BioScience – businesses that are genuinely helping society and Governments fight – and overcome – the coronavirus pandemic.

From 31/12/19 to the fund’s low point of the year on 23/03/20, the fund lost 38.6% of its value. However, from 23/03/20 to 31/12/20, the fund returned 48.3%. This only serves to illustrate a point that we frequently make: investing is a long term game and it is important not to be thrown off course by short term volatility.

Our approach remains cautious and prudence remains the order of the day. We are watchful of stock liquidity and practice careful cash management.

We mentioned our participation in HeiQ’s IPO in last month’s factsheet and we are delighted at how the shares have performed since listing. We very seldom participate in IPOs – only becoming interested when something really special comes along – so we are pleased to see our assessment of the company being validated by the market so quickly. The company recently announced that it had acquired MasFabEs, a leading Spanish manufacturer of protective face masks that use HeiQ’s Viroblock technology. Not only does this acquisition give HeiQ greater control over the manufacturing of its products but it will also deliver higher margins. There is a long runway ahead and we are comfortable having the company as our top holding.

We once again wish everyone a Healthy, Happy and Prosperous 2021 (in that order) and hope for a swift return to some semblance of normality in our daily lives.

Sterling Investments Management Ltd
Lynwood House 2-4 Crofton Road,
Orpington, England, BR6 8QE

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