Amati AIM VCT AGM and Retailers

Amati AIM VCT is one of those peculiar beasts – a Venture Capital Trust. Yesterday I attended their annual general meeting and here are some general comments on the company and the meeting:

Amati AIM VCT (AMAT) is the result a merger of the two Amati VCTs. They had very similar portfolios so this made a lot of sense, and the result is a large VCT with total assets of £147 million. This figure was also boosted by excellent performance last year – a total return of 45.2% on VCT2 for example. That of course was helped by a surprising good performance from AIM companies in general last year, but the Numis AIM index was only up 29%.

How was the performance achieved? By selective stock picking primarily, and by holding on to the winners. So the top ten holdings are now: Accesso Technology, Frontier Developments, Keywords Studios, Quixant, Learning Technologies, Ideagen, AB Dynamics, GB Group, Tristel and the TB Amati UK Smaller Companies Fund. The fact that I hold 5 of those companies directly tells me I should keep an eye on what the VCT is investing in.

Note that I learned to take a jaundiced view of AIM VCTs who traditionally did worse than private equity (i.e. generalist) VCTs due to being suckered into investing in dubious IPOs in what was historically a poor-performing AIM market. But there are always exceptions and perhaps this shows that AIM is improving and AIM fund managers are learning to be more discriminating.

There were presentations from fund managers Anna Wilson (new to the company) and founder Dr Paul Jourdan. The latter gave a somewhat “spaced out” presentation as if he had not spent much time preparing it. It included coverage of a chess match between two software programmes, indicating how clever they had become. Perhaps Paul is worried about being replaced by a computer. But I think the main message we were meant to receive was that the world is rapidly changing with disruptive new technology such as AI.

Anna Wilson covered the worst and best portfolio performers and some of the new investments. The latter include i-Nexus Global (INX: software to help companies to implement strategies), Water Intelligence (WATR: leak detection and remediation), AppScatter (APPS: app management platform) and Fusion Antibodies (FAB: antibody based therapeutics for cancer treatment).

There were also presentations from investee companies Loop-Up (LOOP) and FairFX (FFX) both of which I hold directly. In the latter case, and as the CEO said in his presentation, they should probably change the name as it does not just do foreign exchange provision which is now a crowded market. That was particularly so after the announcement in the morning about a new service to provide business banking to SMEs. By using their new e-money issuing licence they can act like a bank in almost all regards except that they cannot lend client funds out to others. But that just makes them safer.

As I hold both Loop-Up and FairFX directly I did not learn a great deal more but they were interesting nonetheless. It’s always good to be reminded why one bought a stock in the first place.

As Paul Jourdan indicated there are rapid changes in some markets and retailing is certainly one of them. There has been wide media coverage of the fact that even John Lewis, that favorite destination for middle-class shoppers along with its Waitrose stores, is now not making a profit. Here’s a good quotation from Sir Charlie Mayfield, John Lewis Chairman: “It is widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different. For the partnership, the focus is on differentiation – not scale”.

This is undoubtedly true. Competing with other supermarkets with a general “stack them high, sell them cheap” approach certainly makes no sense. It seems John Lewis is having some success with clothes by using “personal style advisors” (rebranded shop assistants).

Clearly the future is internet shopping for many products, perhaps with some “destination” warehouses for viewing and collecting goods. There are some categories of products where viewing the merchandise, particularly on big ticket items or where one cannot simply return them, may still be essential. Those where advice is required might also require a personal touch but some of that can be done remotely. Where the damage will be mainly done is to high street outlets and shopping malls for which I can see no good purpose. Perhaps if they can turn themselves into entertainment and drinking/eating venues they can survive but it’s clearly going to be a lot tougher for such venues and the smaller retail chains that rely on them. Department stores will likely suffer as they already have so investing in companies such as Debenhams is surely questionable unless they become much more internet focused with the shops changing in function.

The high streets are already changing. Banks going, clothes shops closing and more restaurants, cafes, fast food outlets and charity shops if my local high street is anything to go by. Do I regret the changes? Perhaps but I also know it’s not wise to piss against the economic and technological winds. For investors the message is that with such rapidly changing markets, one has to keep an eye on evolving trends and how company management is responding, or not, ever more closely.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )