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.
The company’s NAV increased by 2.04% in the month and the discount also narrowed from -28.74% to -16.05%, which is a pleasing result on both counts. We continue to focus on narrowing the discount through a concentrated marketing effort combined with modest buy backs.
Volex continues to perform very strongly, with the price increasing by 28.88% in the month on the back of a positive trading update and significant earnings upgrades of 39% and 25% this year and next year, respectively. We continue to see significant upside potential from the strong mix, including a recovery in healthcare, acquisition potential, and longer-term structural growth in electric vehicles and data centres. We look forward to the interim results which are due to be published later this month.
Underperformance came from Synectics which declined by 11.11% on no news, but likely some overhang from the prior months disappointing trading update. As we explained in the interim results, Synectics’ end markets, predominantly gaming, have been heavily affected by coronavirus restrictions. The company is making headway in other sectors and focusing inwardly during this period of lower demand which we think is the correct course of action.
We have made progress in acquiring and scaling new toehold positions which we will comment on in next month’s factsheet.
31st October 2020.
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.
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.
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).
Launch date 9 May 2017
Morningstar sector UK Smaller Companies
Hugh Aldous, Chairman
Andrew Griffiths, Non-Executive Director
Linda Bell, Non-Executive Director
Robert Legget, Non-Executive Director
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.
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.