Kernow Asset Management tear sheet for the month ended January 31, 2025.
The strategy held steady in January as large caps significantly outperformed domestically focused small and mid-caps.
Staying Ahead of the Curve
Back in December, we discussed Wise and the critical importance of tracking competition. Right on cue, HSBC just threw in the towel, shutting down its challenger app, Zing. This is remarkable. Despite the huge head start in already having a global FX platform, the culture of entrenchment seemingly doomed it to failure. We’ve seen this before: NatWest folded Bo in 2020, and Barclays walked away from Pingit in 2021. The pattern is clear. Leadership never truly committed to change.
Read more hedge fund letters here
When Management Delivers, You Pay Attention
Card Factory was the standout winner for us this month. We even raised our Kernow valuation on the stock, bumping its portfolio target weight to 9%. The spark? It delivered on ambitious H2 targets and maintained its FY 2026 outlook, despite unforeseen increased tax contributions. That kind of execution earns full confidence. Management said they’d do it, and they did it. Simple as that.
This might sound obvious, but trust us, it’s rare. Plenty of management teams tell investors what they want to hear, not what’s actually happening. Just ask IG Design shareholders. In November, management reassured the market on its full year numbers. Then last month they dropped a profit warning that wiped out 60% of its market capitalisation in a day.
We will admit we had our doubts about Card Factory. We don’t buy greeting cards, and we haven’t worked with this management team before. We doggedly stuck to our investment process exploiting imperfect information, which included CFO insider buying at the lows. We expect to hold for four years and look forward to owning a quality growth stock trading in disguise.
Sky-High Dividend and Uncertainty Cleared
Saga and Amedeo also saw significant Kernow valuation shifts this month. Amedeo’s board took matters into their own hands with a buyback equal to c.15% of the company. That alone is aggressive. Add in a c.13% dividend yield, and you have one of the highest payouts in the market. Pure capital discipline at work.
Saga refinanced its debt out to 2031, eliminating a major overhang. That removes uncertainty, which should clear the way for the stock to move higher.
Big Gains, What Comes Next?
Burberry was the standout contributor this month, delivering a 21% share price jump after its latest update signalled real progress under the new CEO. First-half losses? Wiped out by second-half gains. Since bottoming in September, the stock has more than doubled. Momentum is strong, and the runway looks long. That said, the market may be getting ahead of itself. Expectations feel stretched, and Q4 numbers will likely come in softer. A pullback wouldn’t be surprising before the next leg higher.
Caught in the Crossfire
We were short Close Brothers. Its capital structure is clearly weak. It needs an equity raise or asset disposal. To make matters worse, it has a looming car commission scandal court case on the horizon. The trade plan was straightforward, cover the position before the case either started or settled. Buy the rumour, sell the fact.
Then, the UK Treasury threw a curveball. It asked the Supreme Court to restrict claims. The Government’s rhetoric here doesn’t hold much weight from a legal perspective. Yet, in markets, perception is reality. The window of opportunity closed. That shift in sentiment was enough to drive the stock higher. We took the hit and moved on. Cutting losses and letting winners run is the foundation of any successful strategy.
Capitalising on Market Disparity: Why the UK Offers Exceptional Return Potential
We believe in the power of differentiated thinking. To that end, Kernow provides a compelling choice for investors seeking differentiated, high-conviction UK equity exposure. The potential for returns in the UK is vast. It’s one of the biggest markets in the world, and here is the crucial bit - the dispersion between quality and junk stocks is the widest in developed markets. (See Kernow Journal 3, point 7). It is a fundamentally driven stock-picking paradise.
Kernow has a distinct competitive advantage from its contrarian approach. We don’t follow the crowd; we integrate the facts. That’s how we find opportunity and turn market inefficiencies into real returns. The deep fundamental research is backed by proprietary tools and in-house analytics that allow us to scale on that advantage.
Since its inception in November 2019, the Kernow strategy is up 61%, compared with the UK equity market, which has increased 40% over the same period. The collective upside in the portfolio is worth more than 229%.
- Book of the month: Money Monsters by Andy Kessler (a really good easy read if you ever dreamt about being a fund manager)
- Good month for: Close Brothers +35% after government intervention
- Bad month for: Ricardo -40% after warning that delays in orders would hit full-year results
I will be participating in the Hedgeweek Funds of the Future Europe 2025 event on Tuesday, 29th April. Let me know if you are attending and would like to catch up before or after the session.
All the best
Alyx Wood
Chief Investment Officer
Kernow Asset Management
See the full factsheet here.
