Technology and healthcare have been key drivers of the recovery since the coronavirus sell-off ravaged markets in March, and Gresham House’s Citywire AAA-rated Ken Wotton has taken a bet in a sector that combines the two trends: digital mental health.
Wotton, who manages the £255m UK Micro Cap fund, purchased a 7.2% holding, worth £5.7m, in online mental wellbeing community for children and teenagers Kooth after the firm undertook an initial public offering (IPO) on 2 September.
The business raised £26m in a rare recent listing on the AIM market, which in the first half of 2020 recorded just five IPOs compared with 18 last year. Kooth shares opened at 229p before jumping 6% to 244p and have since settled at 240p.
‘As the IPO market is unthawing we have invested in healthcare tech business Kooth. It was an IPO that wasn’t priced aggressively, so we were one of the bigger investors,’ Wotton said.
‘We are very interested in digital transformation as a theme, whether that be tech companies enabling it or companies ahead of the curve delivering it themselves. Kooth is digital transformation and has good tailwinds in terms of priority spending going into it and they have a market leading position.’
Wotton, who runs the fund alongside Citywire AAA-rated Brendan Gulston, is hoping the pair can benefit from increased mental health spending within the NHS, with the business also looking to internationalise and move into the adult mental health segment.
Has tech had its time?
The fund has a 14% exposure to technology and 10% in healthcare. With some names in the two sectors rallying to all-time highs, Wotton has also taken the opportunity to take profits by trimming some of his positions.
‘The recovery has been very uneven, technology and healthcare have gone through the roof, in a lot of cases above where they were pre-Covid,’ he said. ‘We have been incrementally taking some profits in tech and healthcare, areas that have recovered strongly, and reinvesting in the still cheap, maybe short-term impaired but long-term good prospects.’
The fund sold out of its 2% holding in mobile technology business IMImobile and its 2.5% holding in IdeaGen in July as both stocks recovered to a ‘significant premium’ having been hit in the March sell-off.
IMImobile is down just 2.6% from its pre-March highs of 421p having fallen 44% to 235p, but Wotton and the team bypassed a recent capital raising opportunity from the firm as the valuation reached its upper limits.
‘We didn’t participate in the capital raise, shares have done really well and they are a significant premium to where they were pre-lockdown. We felt there were better opportunities elsewhere. It’s still a good business. If it got cheaper we would probably buy…