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CRUX UK SPECIAL SITUATIONS FUND: Britain is back…now we’re a buyer’s market

Investment fund managers are convinced that the UK stock market still provides opportunities for investors to make some serious long-term gains.

Although the market’s bounce back over the past year from the shock of lockdown and economic disruption has been strong – the FTSE All-Share Index is up more than 24 per cent – investment experts believe there is more to come. 

Among them is Richard Penny, manager of £110million fund Crux UK Special Situations. 

He says that the UK stock market remains ‘cheap’ and could deliver annual double-digit returns over the next ten years. 

‘For a long time, the UK was on the naughty step,’ he says, referring to Brexit. ‘But the UK stock market is now a buyer’s market. 

‘In valuation terms, the UK and European stock markets are cheap while US equities look expensive.’ 

It’s a view shared by Dan Harlow, a fund manager at AXA Investment Managers. 

He says the country’s successful vaccination programme and lifting of most lockdown restrictions has created ‘outstanding opportunities’ in ‘sold-off, domestic-facing sectors such as retailers and leisure companies’. 

He adds: ‘We are optimistic about the recovery for UK domestic names as the UK economy opens up.’ Favourite holdings include Gym Group and Hollywood Bowl.

Penny’s UK Special Situations fund is currently spread across 60 stocks, from all parts of the UK stock market – FTSE100 listed companies through to ‘micro’ stocks. 

The result is an eclectic portfolio, but where the common theme is an opportunity that Penny sees to make money in the next two to five years, often stemming from management change. 

At one end of the spectrum are stakes in household names such as insurer Aviva, mining giant Rio Tinto and hotel and restaurant giant Whitbread. 

These are companies that Penny believes are mispriced in stock market terms and provide ‘upside’ over the coming months. 

At the other end is a stake in a special-purpose acquisition company (spac) called Advanced ADVT, chaired by British businesswoman Vinodka Murria and set up to purchase private software companies. 

Murria is best known for setting up software business Advanced Computer Software in 2008 and transforming it into a £750million company bought by private equity firm Vista Equity Partners in 2014. 

Fund managers are convinced the UK stock market still provides opportunities for investors to make some serious long-term gains

Fund managers are convinced the UK stock market still provides opportunities for investors to make some serious long-term gains

‘I’ve backed her business acumen before,’ says Penny, ‘and I like the fact that she has a personal financial interest in ensuring Advanced ADVT is a success.’ 

Penny is hoping shares in Advanced ADVT will increase in value once a suitable acquisition is made with the £130million of funds it has at its disposal. 

Another key holding is infrastructure specialist Hill & Smith. Penny bought into the company six months ago at £14.50 a share and the shares are now trading at around £16.30. 

‘The company has benefited from new management brought in from manufacturing group Halma,’ he says. ‘It’s become a core holding for us.’ 

Since launch in October 2018, the fund has generated profits for investors of 39 per cent. 

Over the same period, the FTSE AllShare Index has increased in value by ten per cent. 

Annual charges total 0.86 per cent and dividends are paid every six months, albeit on the low side at around one per cent a year. The stock market identification code is BG5Q5X2. 

Crux Asset Management has £1.7billion of assets under management. Its flagship fund is the £850million Crux European Situations, managed by Richard Pease (ex Jupiter and New Star).