Fund Profile

River & Mercantile UK Micro Cap 09 September 2019

Disclaimer

Disclosure – Non-substantive Research

This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour. 

Overview
On a discount of 20% this trust could be an interesting option for those who believe the UK will at some point bounce back..
Overview

River & Mercantile UK Micro Cap (RMMC) aims to achieve long-term capital growth from investment in a diversified portfolio of UK micro-cap companies, typically comprising those with a market cap of less than £100 million at the time of purchase.

The company launched in December 2014, with George Ensor having taken over as manager from Philip Rodrigs in 2018. George looks to utilise an active, bottom-up strategy looking to add real value in the micro-cap end of the market via in-depth analysis where coverage is sparse. Like all managers at River & Mercantile, George follows the group’s PVT (Potential, Valuation, Timing) investment approach (see portfolio section).

As of the end of June 2019 the portfolio is relatively concentrated, with only 43 holdings, but diversified by size and sector. Only financials have a weighting greater than 20%, and even the largest sector overweights, oil & gas and health care are relatively low at +6.5% and +5.4% respectively.

Performance has been varied since George took over the portfolio in a difficult period for UK small cap managers. Initially, performance was strong and for much of 2018 the trust outperformed the benchmark and peers alike. However the trust saw its returns hit hard in Q4, ruining what might have otherwise been a strong start for the new manager. Since then, to 28 August 2019, the trust has returned 6.6% marginally underperforming the benchmark (6.9%) and trailing the AIC peer group (9.5%).

As with most UK focused trusts, the past few years have seen the discount widen dramatically – although in this case, exacerbated by the change in manager in early 2018. Over the past two years the trust has reached a premium of close to 17%, and a discount of over 20%. Currently the trust is trading at a discount of around 20%, considerably wider than the sector average of 9.2%.

Kepler View

There are plenty of things to like about River & Mercantile UK Micro Cap. Firstly, the manager isn’t afraid to have conviction behind his approach, illustrated by the low number of holdings in the portfolio and the fact George often invests in companies that could be considered out of favour. Nevertheless, the portfolio is well diversified across industries and this is reflected in the low beta of the portfolio and low volatility in comparison to peers.

George has come to the helm of the portfolio during a tricky time for managers, especially those within the UK small cap space. The trust was hit particularly hard in Q4 due to style exposure and some stock selection issues. Since then, returns have improved; although still lagging the peers. However, this might have been over exaggerated in the discount and having gone from trading on a very hefty premium only a year and a half ago, the trust is now trading a discount of close to 20%, offering a clear opportunity for investors. Should we see some of the pessimism surrounding the UK subside, the discount could well narrow.

bull bear
Strong performance since inception
New manager has yet to outperform the benchmark and peers
Extremely wide discount relative to peers and history Pessimism continues to surround the UK
Specialist mandate that suits the investment trust structure Relatively expensive OCF
Continue to Portfolio

Welcome to Kepler Trust Intelligence

Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority.
Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority. To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.