Downing Strategic Micro-Cap Investment Trust (LSE:DSM)

“Downing Strategic Micro-Cap Investment Trust Plc – Aims to take influential positions in a focused portfolio of UK micro-caps”

The Trust seeks to provide investors with long-term capital growth through a concentrated portfolio of 12-18 UK listed companies that typically have a market capitalisation of below £150 million (at the time of investment). We define these as micro-caps. The Trust intends to take an influential position (around 3% - 25% equity stake) in each underlying business.

                          

 

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Portfolio commentary

In the final month of the year, the company’s NAV returned a pleasing 5.2%, contrary to the share price which declined by 1.6%. It is disappointing that the shares have not attracted more interest given the strong underlying performance of the majority of the companies and their combined prospects which, at the turn of this year, in our opinion, are brighter than at any time during 2020.

 

In the month, FireAngel’s share price increased by 58.7% as it posted a positive trading update, highlighting that monthly revenues continued to improve through November driven by the trade and retail sectors. This was followed by director buying towards the end of December and early January. Volex also performed strongly, with the share price up 17.1%, but on no new news. We continue to think that the shares are undervalued given the exposure to structural growth markets and the consolidation opportunity across Volex’s markets.

 

There were few significantly negative contributions. Digitalbox’s share price declined by 6.0% on the news of underperformance driven by a change in Facebook’s algorithm, however we remain confident that business can navigate this issue and generate significant shareholder value over the medium term.

 

With many strategic catalysts now implemented and much of the heavy lifting completed, we are confident going into 2021. Despite this, our portfolio companies and the company itself remain seriously undervalued and we are focused on driving positive sentiment through this year.

31st December 2020.

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Judith MacKenzie

 

 


Lead Investment Manager

Judith founded Downing Public Equity in 2009 and was named Small-Cap Fund Manager of the Year at the Small- Cap Awards in 2013 and 2015 for the Downing UK Micro-Cap Growth Fund.

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Investment rationale

     Private-equity approach to research and engagement seeks to unlock greater shareholder value over the longterm.

     We believe a strategic, proactive investment approach can help smaller companies realise their potential.

     UK microcaps offer a wider investment universe and can offer better value relative to larger caps (Factset).

Share price information, the latest investor letter which contains comprehensive information on the Trust’s performance, strategy and holdings, plus historical factsheets, RNS announcements, and

video interviews with the manager, are all available

to download from the homepage of the Downing Strategic Micro-Cap Investment Trust website.

Trust objectives:

The Trust aims to generate a return of 15% p.a. compound over the long term. Please note that this is a target only and is not guaranteed.

The Manager employs a value approach and seeks to be influential through taking strategic stakes.

The Trust seeks to hold a concentrated portfolio between 12-18 holdings.

The Trust will typically hold between 3 – 25% of the equity of investee companies, notwithstanding ability to use debt instruments alongside equity.

Long-term investment horizon over three to seven years.

 

Buyback mechanism for up to 14.99% of the equity of the Trust seeking to closely control discount (at the Board’s ultimate discretion and subject to shareholders’ annual approval).

Risk warning: 

Your capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in smaller companies will normally involve greater risk or volatility than investments in larger, more established companies. Performance figures are taken from daily valuations provided by Maitland Institutional Services Limited. Return is the total return (value of the investments plus cash including income after all expenses and charges), ignoring taxation. Because shares in an investment Trust are listed on the London Stock Exchange their price is affected by supply and demand. This means that the share price may be different from the NAV. The Company’s investment strategy may involve the use of leverage, which exposes the Company to risks associated with borrowings. Please note that past performance is not a guide to future performance.

Important notice


This document has been approved and issued by Downing LLP (“Downing”), St Magnus House, 3 Lower Thames Street, London EC3R 6HD. This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Opinions expressed in this document represent the views of the Investment Manager at the time of publication, are subject to change, and should not be interpreted as investment advice. You should only invest based on the information contained in the relevant product literature available from Downing. Downing does not offer investment or tax advice or make recommendations regarding investments. Please see the relevant product literature for details of charges; your attention is drawn to the risk factors contained therein. Downing is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England No. OC341575.

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