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

The Company’s NAV returned -2.09% in June. The discount widened to finish the month at 27%. This is disappointing, especially given the relatively positive news flow that our companies reported in the period. As uncertainty lingers around COVID and other economic events such as the US election, we continue to work diligently to uncover further opportunities for the Company. We are also continuing to build our position in the toeholds which we have mentioned previously.

 

The most significant positive updates came from Synectics and Hargreaves Services – both reporting results in the period. Unfortunately, the positive contributions were outweighed, largely, by the negative contribution from Volex, which ended the month at 136p, around 11% lower than where it began. This was despite, in our view, a robust AGM statement, which reiterated that performance was in-line with prior years. At the time of writing, the share price is already back to 144p.

 

In the month, we exited our remaining position in Gama Aviation in full, prior to it announcing results. This is an incredibly disappointing outcome, but one which has been driven by an increasing lack of confidence in the management team and Board, following restatements of its accounts, and what we perceive to be misleading accounting practice which flattered cash flow, including by failing to recognise the receipt of overpayments totalling c$5 million in 2017 and c$5.75 million in 2018. We are equally disappointed that Gama’s directors, brokers and auditors at the time, have not faced any challenge to their professional conduct before, during or after the placing in February 2018 in view of the subsequently discovered accounting inaccuracies.

31st July 2020.

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).

Company information

Launch date 9 May 2017
Morningstar sector UK Smaller Companies

Managers

Judith MacKenzie

James Lynch

Nick Hawthorn

Directors

Hugh Aldous, Chairman
Andrew Griffiths, Non-Executive Director

Linda Bell, Non-Executive Director

Robert Legget, Non-Executive Director

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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The value of investments can go down as well as up and you may get back less than you invested. 
We provide information about investments but do not offer personal advice and recommendations. We do not hold responsibility for assessing the suitability of an investment or evaluating the risks of such an investment for you.  If you are in any doubt as to these risks or the suitability of an investment.  Y
ou should seek independent advice.

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