Oliver Brown, co-manager of RC Brown's MFM UK Primary Opportunities fund, has added nine new positions to his portfolio in the last four weeks amid an investment backdrop he likens to 2009.
Brown, who has co-managed the portfolio alongside Bob Brown and Alan Beaney since 2006, has either added new positions or increased his weightings in the likes of ASOS, essensys, IMI Mobile and WHSmith, as a greater number of high-quality companies with strong balance sheets and "sensible management teams" have decided to raise capital amid the pandemic.
"The situation we are in is unprecedented, but it does give rise to a lot of companies needing to raise capital for obvious reasons because, in some cases, their sales have fallen off a cliff," the manager said.
"Yes, the companies can go to their banks and ask to borrow some money, but the banks may not necessarily be forthcoming and the firm doesn't necessarily want to have the debt. So, the other option is to turn to your shareholders, which is exactly what happened during 2008 and 2009 when a huge level of equity reissuance occurred.
"Yes, this was led by the banks, but today's environment is very similar in my view, except this is not a financial crisis - it is a health crisis that has in turn caused a financial crisis of sorts."
As such, Brown said the team has been able to buy into a greater number of 'primary opportunities' - companies issuing new shares - at a discount to the market price, therefore adding alpha and protecting against the downside.
"Usually when we talk about primary opportunities, we are thinking about companies that are looking to raise money in order to expand their business, to increase their research and development [capabilities] or even to hire more people," he explained.
"But what you are seeing now from a lot of companies and sensible management teams is that they are raising money to tide them over in the short term, in case they have to shut for the next two-to-three months.
"We are also seeing stronger players raising some extra capital so they do not have to worry incessantly; this also allows them some extra capital for when the recovery arrives and then they can probably come out of this environment in a stronger position than they were in before."
As a result, the manager explained this could lead to high-quality companies taking market share after the crisis resolves itself, but which are currently attractive valuations.
An example of a holding Brown has topped up is WHSmith, which recently raised capital because its stores across airports, train stations and UK high streets have temporarily closed down as a result of the pandemic.
"We first bought WHSmith last year because it was raising capital to buy [Las Vegas-based firm] Marshall [Retail Group], which has a lot of outlets in the US," he said.
"Now it is raising capital again it is exciting, because we believe we are getting a good quality company at a bargain price. I would like to think that, in a year's time, this will become a very good investment.
"In two to three years' time, I think we could make a very significant amount on this indeed."