SORBUS VECTOR: Manager commentary July 2022

Jul 14, 2022

SORBUS VECTOR fund enjoyed a good month in terms of relative performance, being down slightly 0.3% whilst the benchmark, the MSCI UK IMI All Companies Index, fell by 5.0%.

This can be attributed predominantly to two factors.

Firstly two of our holdings received bids. EMIS, which provides online software and services for doctors surgeries, agreed a takeover of 1925p per share from the US giant healthcare and insurance company UnitedHealth Group.

In addition, Euromoney announced they were in bid talks for a possible offer of £1461p from a private equity consortium.

Whilst we will be sorry to see these companies leave our fund, the size of the premiums being offered are, we believe, a vindication of our investment process and focus on the strength of the business franchise and barriers to entry of the businesses we select for our investors.

The EMIS offer was a 49% premium to the share price prior to announcement and Euromoney, if the offer succeeds (it is subject to due diligence and private equity have a habit of walking away from deals), is a potential 34% uplift in value from the pre bid price.

It also serves to highlight the value in the overall UK equity market, which is one global investors have shunned since BREXIT. The fall in sterling against the dollar has only served to increase the attraction of quality UK businesses to American and foreign companies.

Additionally, the performance of our businesses reflect their ability to pass on cost inputs in an inflationary environment, one we are increasingly confident will pay dividends (both literally and metaphorically) in the current environment of swiftly increasing raw material and wage prices.

Whilst the UK stock market has lagged the US significantly over recent years, so far this year the situation has reversed. During the first 6 months of this year the tech laden NASDAQ fell by 29% and the broader S&P 500 by 20%. By comparison, the FTSE 100 is down 3%. These falls have been masked for UK investors as sterling has weakened significantly against the dollar.

The US dollar is perceived as a safe haven asset. Despite the US having long since passed the record of being the most indebted nation in the history of the world, in times of stress the dollar tends to perform well as investors rush to hold safe haven assets.

We make no claim to be able to forecast currency movements. However, considering it is still racking up debt day by day, (going from a debt level of just 33% in 2000 to currently approaching or over 100% ie £30 trillion and going from a balanced budget in the Clinton era to now a huge annual deficit) the direction of travel in the US (and also our own in the UK by the way) is obvious. Whether such debt levels are sustainable is a question on many investors’ minds.

We continue to have a high cash weighting and are, as always, actively looking for new investments to replace the above two holdings in due course and to deploy our existing cash where opportunities arise.