Miton UK MicroCap 30 December 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Miton UK MicroCap. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
The trust’s primary objective is to generate capital growth through investing principally in a portfolio of smaller UK quoted companies, generally with market capitalisations less than £150m.
Miton UK MicroCap
Miton Trust Managers Limited
Gervais Williams; Martin Turner;
Association of Investment Companies (AIC) Sector
UK Smaller Companies
12 Month Yield
Dividend Distribution Frequency
Latest Market Capitalisation
Latest Net Gearing (Cum Fair)
Latest Ongoing Charge Ex Perf Fee
(Discount)/ Premium (Cum Fair)
Daily Closing Price
Miton UK MicroCap (MINI) was launched in 2015 to invest in the UK’s smallest listed companies, typically AIM-listed stocks with market capitalisations of less than £150m. The strategy focusses on generating capital growth, the managers Gervais Williams and Martin Turner looking for companies that are positioned to generate substantial surplus cash in excess of market expectations in the near term.
As discussed in Portfolio, the trust itself was launched to take advantage of major global economic and financial trends that Gervais and Martin believe will reverse the trend in highly rated, large growth stocks outperforming and favour smaller, cash generative, attractively valued stocks. The managers believe that the UK AIM market offers a wide opportunity set of genuinely small companies with the capacity to grow substantially.
Although the macro trends forming the raison d'être of the strategy have yet to play out, global returns still being dominated by highly rated large-cap growth stocks, MINI has performed well, beating the FTSE AIM All-Share Index and matching the returns of its peers in the UK Smaller Companies sector over a period that did not favour its value-orientated style. As reviewed in Performance, some outsized returns in 2020 and 2021 versus peers and benchmarks have hinted at the potential gains MINI offers if the underlying thesis of Gervais and Martin plays out.
MINI currently trades on a discount of c. 7.4%. The trust offers an annual redemption scheme that limits the potential impact of the Discount on trust shares for investors that wish to redeem and are willing and able to wait for the redemption date as set by the board each year.
MINI is a strategy predicated on the contrarian worldview of the managers, Gervais and Martin, who predict that the reversal of decades-long trends in globalisation, declining interest rates and the expansion of cheap credit will flip the dynamics of equity markets, seeing small value stocks outperform the highly rated mega-cap stocks that have dominated markets for many years. Gervais and Martin argue their case persuasively and passionately. However, even if an investor does not entirely agree with the managers’ weltanschauung, the UK microcap sector offers a set of highly differentiated opportunities and could act as a diversifying source of returns for an investor. The ability of microcap companies to grow in a stagnant economic climate could prove useful.
MINI does have some potential drawbacks for investors, it is focussed on generating capital gains, so does not provide much income, and microcaps are an inherently volatile asset class that are particularly sensitive to liquidity conditions in markets. However, for a risk-tolerant investor without an income requirement, the potential for growth from MINI is attractive, and the focus of Gervais and Martin on cash generation, the general avoidance of Gearing and highly speculative stocks and the use of portfolio protection do mitigate some of the risks of the asset class. The annual redemption facility also provides some comfort that an investor’s capital will not be trapped behind a deep and persistent Discount if sentiment towards the trust turns negative.
|Microcaps provide returns less dependent on global growth
||Microcap stocks are substantially more volatile than larger cap peers
|Annual redemption facility provides backstop for investors being impacted by discount
||Charges are above average for sector
|Use of portfolio insurance can assist recovery from market drawdowns
||Costs of portfolio insurance will be a drag on performance in bull markets