So why has performance been so strong?
As you can see from the AIM index market performance – this time last year companies were in hindsight very cheap. This was a function of the UK and other global nations being in lockdown and pushing the global economy into recession. Fast forward a year, we have a number of successful vaccines, which in the UK has been administered to the high priority groups and as a consequence, the economy is gradually reopening.
But that only tells half the story – the companies we have selected in the AIM portfolio have also been net beneficiaries from the Covid environment. During the year some of the big winners have been;
Volex Group, the power cord and cable solutions business, standout performances were seen in EV charge cables and in strong demand for consumer electronics that naturally benefited from lockdowns and increased working from home.
CVS Group, the veterinary services business, as we have looked for companionship during restrictions.
Naked Wines, the wine delivery business, as we have not been able to visit our favourite establishments, we have turned to enjoying ourselves at home.
We are not static in our investment approach at Luna, and we have sold two of the above companies and reinvested in companies that can benefit as the economy reopens.
A recent change has been to reinvest in Young & Co Brewery. We have done this to benefit from the economy reopening from restrictions and believe public houses will be a key beneficiary.
We continue to scour the AIM market for companies that both qualify for business property relief and we adjudge to be good quality as well. We deem quality as companies that; have good management, they are in growth mode, have high margins and a strong balance sheet.
Valuation is also a key consideration, and we look to take advantage of cheaper valuations to provide an element of downside protection. We believe this remains a very sensible approach when investing in some of the highest risk companies in the UK market.
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