Downing launches strategic micro-cap investment trust, targeting 15% p.a. return
- Aims to deliver 15% p.a1 returns by exploiting market inefficiencies in micro-cap stocks
- Managed by award-winning2 Judith MacKenzie and her experienced smaller companies- focused investment team
- High conviction strategy in focused portfolio
Downing is launching its first investment trust, the Downing Strategic Micro-Cap Investment Trust plc (DSM), lead-managed by award-winning smaller companies’ specialist Judith MacKenzie. The Trust aims to deliver the returns associated with private equity investing coupled with the transparency of investing in listed companies. The Trust will aim to mitigate risk through the team carrying out extensive due diligence coupled with pro-active engagement with the management of investee companies. Working alongside MacKenzie are Downing’s Alyx Wood (Fund Manager), James Lynch (Fund Manager) and Nicholas Hawthorn (Investment Manager).
MacKenzie has ca. 20 years of experience in small company investing and is Citywire-AAA3 rated for the performance of her flagship Downing UK Micro-Cap Growth Fund, to which the new Trust will follow a similar strategy. The UK Micro-Cap Growth Fund has an impressive track record of delivering consistent outperformance with lower volatility than its benchmark index and IA peer group sector as illustrated in the chart below4. The Fund has returned 14.6% p.a since February 2011 which represents growth of more than 128.7% over the period. Judith MacKenzie comments:
“Our investment process should enable the Trust to mitigate much of the perceived ‘risk’ in quoted smaller companies while the closed-ended structure ensures that the interests and investment horizons of both investors and the fund manager are closely aligned.”
The Investment Trust will have between 12 and 18 individual investments, holding between 3% and 25%5 in the equity of any one company where the team believes that the business is significantly undervalued and, over the investment horizon, they can unlock shareholder value through proactive engagement with management teams. There are various ‘strategic’ mechanisms for this that the team has used in the past such as: restructuring boards, aligning incentive packages, recapitalising, and funding acquisitions for growth and/ or synergies. Some of the best performing holdings in the Downing UK Micro-Cap Growth Fund have been through the implementation of one or several of these strategic initiatives.
Source: F.E. Analytics 29/02/2012 – 28/02/2017
“Companies with a market cap of under £150 million – and particularly those under £50 million - lack analyst coverage and institutional attention which drives pricing inefficiency and, therefore, attractive valuations. There is a wider universe of micro-cap companies6, therefore, we believe, there is a wider opportunity compared to those companies with larger market capitalisations, as micro-cap companies tend to better value.7”
MacKenzie believes that there are attractive investment opportunities for experienced, long term investment managers who carry out detailed due diligence on micro-caps and who can devote time to understanding a business, its markets and its management team.
For press enquiries, please contact:
Pamela Morris, The Lang Cat
0131 202 6037
Jean Birrell, Downing PR
Risks: You should note that your capital is at risk with this investment. Past performance should not be seen as an indication of future performance. The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. The price of shares in the Company is determined by market supply and demand and may be different to the net asset value of the Company. Forecasts are not a reliable indicator of future performance. Investments in the Company are also subject to risks associated with investments in the UK property market.
This 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. An investment should only be made based on the product literature or Prospectus. We recommend investors seek professional advice before deciding to invest. The value of an investment, and any income from it, can fall as well as rise. Investors may not get back the full amount they invest and target returns are not guaranteed. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation. Tax reliefs are subject to change in the future and personal circumstances. Past performance is not a reliable indicator of future results. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is authorised and regulated by the Financial Conduct Authority (Firm Registration No. 545025). Registered in England No. OC341575. Registered Office: Ergon House, Horseferry Road, London SW1P 2AL.
NOTES TO EDITORS
Downing Strategic Micro-Cap Investment Trust plc
- Concentrated portfolio of typically 12 to 18 companies with market caps of below £150 million
- Strategic positions of 3% to 25% equity stakes in investee companies
- The Manager will proactively engage with investee companies where they believe they can unlock shareholder value through active and long-term engagement with management
- Target return of 15% per annum compound over the long term (3-7 years)
- Closed-ended structure allows focus on a focussed portfolio of strategic investments
Downing Strategic Micro-Cap Investment Trust - facts & figures:
|Maximum issue size||Up to £100 million|
|Issue price||100p per share|
|Initial NAV||98 per share|
|Investment Annual management fee||1% of net assets|
|Discount control||Redemption option after 3 years; every 2 years thereafter|
|Ability to buyback||Up to 14.99% of issued share capital|
|Gearing||Up to 15% of NAV permitted at the time of borrowing|
The Downing Strategic Micro-Cap Investment Trust plc will be featured in the AIC UK Smaller Companies sector.
About fund manager Judith MacKenzie
Judith joined Downing in October 2009 and established Downing’s Public Equity division; she has 20 years of diverse industry experience working in small company investing, private equity and managing VCTs. She has also held a number of public and private directorships as well as advisory roles to companies and Government. Judith is 5-Crown rated by FE Trustnet and AAA-rated by Citywire (for the three-year performance of the Downing UK Micro-Cap Growth Fund, B Shares, to 28 February 2017). Judith is a Certified Fellow of the Securities Institute and holds a BA in Economics and Finance.
1Return of 15% per annum compound over the long term (3-7 years).
2Investment Week Smaller Company Awards 2013, 2015, Citywire AAA rated, Trustnet Five Crown rating for the three-year performance to 31/01/2017.
3Citywire (for the 3-year risk adjusted performance 28/02/2014 - 28/02/2017).
4F.E. Analytics 29/02/2012 - 28/02/2017.
5Although it may hold larger or smaller shares when it deems appropriate (including up to 29% of the equity of any one company at the time of investment).
6As defined by the NSCI plus AIM ex Investment Companies Index.
7As defined by Price Earnings ratio.