Miton UK MicroCap

MINI is the strongest performing UK Smaller companies trust in 2020…

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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.

Miton UK MicroCap

Miton UK MicroCap Trust (MINI) was launched in 2015 and invests predominantly in a portfolio of smaller UK companies, typically with a market capitalisation below £150 million.

The managers, Gervais Williams and Martin Turner, argue that the growth potential of smaller companies is less dependent on general economic conditions than larger companies’; their view being that smaller companies often have strong growth potential regardless of whether they operate in a market that is contracting overall. This advantage, they say, potentially unrecognised by some investors, has resulted in the micro-cap sector considerably outperforming the FTSE All-Share Index. Since 1955, when the data was first collected, the FTSE AIM index has outperformed the FTSE All-Share Index by an average of 5% per annum.

Gervais and Martin aim to add alpha within the micro-cap universe, by looking for overlooked stocks with a disproportionate upside if they succeed. This strategy means that there is a diverse portfolio of companies operating in different niches. The approach has a relatively high turnover, with gains continually being reinvested in other potential ‘winners to come’.

Since the trust was established MINI’s most significant outperformance, relative to peers, has occurred in the last year, boosted by a variety of single stock successes: including in the healthcare, technology and climate change arenas. The trust has been the strongest performing one in the AIC UK Smaller Companies sector over the past six months and year, also dramatically outperforming the open-ended sector. This outperformance has not been translated to recognition by the market, however, and the trust trades at around a 13% discount.

Kepler View

We see MINI as an excellent vehicle for investors who are looking to increase their exposure to an uncertain UK recovery, which has potential pitfalls along the way. Due to the size of the companies in the portfolio, and the secular growth stories that many take part in it, the performance of the trust shouldn’t be so reliant on the wider economy; the companies should be be in a better position whether we see a fast and strong rebound or not. In addition we note that the discount has not responded yet to the much improved performance over the past twelve months and, with an annual tender offer provision protecting the discount to the downside, this juncture could prove to be an excellent entry point.

MINI is also a diversifier to the typical UK investors’ equity portfolio, with the AIM sector being significantly different in its composition compared with the FTSE 100 and FTSE 250 indices. There is a much greater exposure to the high growth areas of IT and healthcare, which are doing extremely well in the post-COVID environment – the FTSE All Share for example, has just 1.25% in technology. Furthermore there are considerably more quoted companies in the UK with a market cap less than £150m than above it, including a variety of idiosyncratic opportunities than can’t be found elsewhere. The wide variety of secular growth opportunities offers the potential for long-term returns with the right stock-picking.

bull bear
Turnaround in performance over the past year High OCF
Attractive discount relative to peers, despite improved performance Relatively illiquid underlying holdings
Offers diversification to mainstream UK equity funds Relatively broad spread
William Sobczak
William joined Kepler Partners in February 2018 as an investment trust analyst. Prior to joining, William graduated from the University of Western Australia, with a BSc in Psychology.

Fund History

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

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