Precious metals may have monopolised the headlines, but the rather less glamorous steel took the honours in 2021 with a 120% gain, while iron ore did even better in 2020. Gold, meanwhile, has posted negative returns in three of the past ten years, and struggled to top 20% in another five.
Metals may sit in the same bucket, but they behave very differently, making it hard for investors to capture the regular shifts in leadership. A broad commodities ETF is the Route One option, though winners are offset by laggards. In addition, exposure is capped at the underlying price rather than the operational leverage miners can offer, with the MSCI ACWI Select Gold Miners Index rising 155% in 2025, more than twice gold’s 60% return.
This is where active management earns its keep: instead of blanket exposure, specialist managers can target the strongest demand and supply drivers and the mining companies best placed to benefit.
Technology firms can turn out new products in a matter of months, whereas mining companies generally operate on 15-20year lead times for new mines, while also wrestling with declining grades, geopolitics and dependence on one or two commodities. In a sector where supply and demand dynamics can shift quickly, this lack of flexibility leaves investors hitching their fortunes to a slow turning tanker.
BlackRock World Mining (BRWM) aims to offer a ‘virtual mining company’ for investors, spanning precious and industrial metals, single asset names, explorers and diversified producers. This breadth gives managers the flexibility to adjust allocations as conditions evolve.
Evy Hambro and Olivia Markham draw on their combined five decades of experience to assess commodity price outlooks, encompassing regional demand and supply factors, geopolitics, policy developments and the broader macroeconomic backdrop.
Demand drivers vary widely across the universe: gold’s run has been fuelled by fiscal deficits, currency aversion and central bank buying, while silver has been buoyed by solar build-out and a persistent supply deficit running down inventories. Copper is central to the net-zero transition and AI boom, while hyperscalers are looking to uranium to power energy-hungry data centres.
On the supply side, copper has faced significant disruption, with declining grades and ageing assets pushing producers into tougher jurisdictions with higher build costs. Silver supply remains tight, with flat output and heavy reliance on by-product mining. China’s dominance in steel, rare earths and (to a lesser extent) iron ore also exposes supply chains to policy and geopolitical shifts.
The final overlay is company-specific drivers. Key criteria include the quality of the mining assets, balance sheet and capital discipline and the ability to turn higher commodity prices into cash flow. The managers also assess the scope for value creation through reserve growth, production gains or selective acquisitions, which can create meaningful efficiencies and cost savings.
Evy and Olivia are supported by the on-the-ground insight from the wider BlackRock team, from mine visits to third party research. This expertise is critical in assessing operational optionality in terms of which areas to mine, whether to extend mine life or defer undeveloped resources until commodity prices or financing conditions improve.
The proof of the pudding is in the numbers, with BRWM delivering a one year share price total return of 76% (as at 30/06/2025), versus 57% for the benchmark index. This is a clear demonstration of the value of an active strategy over passive exposure, with the managers adjusting portfolio allocations to capture the strongest growth drivers.
As shown in the chart below, the trust offers diversified exposure across both precious and industrial metals, with gold currently accounting for the highest weighting. Copper is the second-highest exposure, underpinned by structural drivers spanning economic growth, the energy transition, defence modernisation and the AI roll-out. Demand is forecast to rise by nearly 50% between 2025 and 2040, according to S&P Global, opening up a substantial supply gap.
The benefit of an active approach was demonstrated in the increase in allocation to gold miners from 22% to almost 40% during 2025, as rising prices fed through to higher margins, cash flow, dividends and buybacks. However, the managers remain mindful of the downside risk from cost inflation, retaining the flexibility to shift from gold miners to physical gold if needed.
China was another case in point, with the managers positioning the portfolio to reflect the bifurcation in Chinese demand. On the upside, they saw strong appetite for copper and aluminium from renewables, grid upgrades and EV manufacturing, but trimmed iron ore and steel exposure in response to softer property and infrastructure demand.
This flexibility also extends across the capital structure, with the option to invest directly in commodities, mining equities and unquoted companies. BRWM can also generate an additional income stream from option writing, debt securities and royalties. Income has accounted for half of the total return over the last five years, helping to limit downside risk if a rally stalls or the economic outlook deteriorates.
Looking ahead, investors are rediscovering the appeal of HALO (heavy assets, low obsolescence) after a decade dominated by capital-light business models. These tangible assets underpin critical infrastructure across energy, industry and defence, offering durability, pricing power and strategic relevance as governments move to secure the supply of critical materials.
AI may be revolutionising the corporate world, but it can't replace a copper mine, steel mill or power grid. BRWM's virtual mining company strategy is well-positioned to capture the most favourable dynamics across the metals universe, as well as the long-term mega-trends of AI and the energy transition.
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]]>2026 has so far proved to be significantly more positive for Greencoat UK Wind (UKW) than 2025, and we note an undercurrent of quiet confidence from the manager’s presentation for the interim results. UKW has a simple model, which puts the trust in a strong position to be a survivor over the short term, and over the long term a valuable constituent of diversified portfolios – for institutions and retail investors alike. UKW’s long standing attributes that underpin its position are that the trust is an attractive proposition at scale (gross assets of c. £5bn), it has a self-sustaining financial model ( long term dividend cover of 1.8x forecast over 2027-31), and that there is low execution risk in the trust continuing to deliver returns into the future, given the strategy is to keep doing what the trust has done for the past 13 years, and does not require a transformational pivot to continue to deliver for shareholders.
Fundamentally, UKW’s proposition remains faithful to its original design, having paid a covered, inflation-linked dividend for the last 13 years. Dividend cover is the key to UKW’s attractions in our view, given it gives the board so much flexibility to deploy capital to the advantage of shareholders. With net cash generation +36% for the six months to 30/06/26 over the same period last year, dividend cover has significantly improved (1.9x for the six months to 30/06/26). Responding to higher energy prices, the managers locked in 20% of annual electricity production for the year ahead at the interim stage, meaning that around 66% of UKW’s revenues for the remainder of the year are now fixed. The team commented that since the half year end, prices for a further 10% of production had been subsequently locked in, mainly in 2027. The managers note that this is not a change in policy, but more a tactical move taking advantage of higher prices. In our view, this should give confidence to shareholders that the target dividend for the year is effectively ‘in the bag’, and that for the full year, there will be significant excess cash for capital allocation.
The team have guided their expectations are that UKW should throw off c. £120-180m of surplus capital for the current financial year. In terms of uses of this capital, we understand that the board and manager are focussed on disciplined reinvestment which is key to delivering long term cashflows to shareholders, having already repaid £30m of the RCF. UKW’s gearing, at 41.7% is marginally higher than the board’s sub-40% target. The successful refinancing of maturing debt is good news for shareholders, and the team highlight that they expect further refinancing activities will be announced later this year. Progressive debt reduction is one source of surplus cash, but with c. £45m re-paid each year from the Hornsea 1 specific loan, the team suggested achieving the sub-40% target may be a medium-term feature, reached through debt repayments but also through re-investment in the asset base to grow the GAV.
UKW’s target dividend yields 9.8% at the current share price. The portfolio discount rate, less annual charges, implies a NAV total return of c 10.7% per annum. As with any investment there are risks that anticipated returns will not be achieved, and one specific risk for UKW shareholders is the threat of politics. That said, with an anticipated doubling of electricity demand to 2050 (NESO Future Energy Scenarios 2025), wind farms are well positioned to make a strong contribution to an increase in supply, being lower cost and emitting zero-carbon at the same time. Any UK government must in our view be careful not to frighten off private capital, which is key to delivering transformational change for voters.
UKW is projected to have c. £1bn of surplus capital available to invest over the next five years, and so the trust could be a meaningful participant in helping to meet the UK’s future energy demands. At the same time, shareholders stand to benefit from any future price spikes caused by geopolitical instability, which the managers observe is becoming an increasing feature of markets. In this regard, UKW potentially offers an appealing package from a portfolio context: the prospect of attractive returns from a base-case scenario, potentially also offering a hedge to energy price rises in the future. With the shares trading on a discount to NAV of c 18% and corporate activity continuing within the sector, a further narrowing of the discount cannot be ruled out.
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]]>Software has so far been the most consequential victim, though the so-called hyperscalers have also borne some brunt. As the Magnificent Seven have underperformed, market leadership has shifted to the ‘picks and shovels’ of the AI ecosystem, namely the semiconductor firms that make, design and/or supply the chips that are crucial in powering AI.
Conflict in the Middle East has conspired to shut the Strait of Hormuz, a key waterway through which, in normal times, c. 20% of the world’s oil and liquefied natural gas (LNG) flows. Today, that flow has slowed to a trickle and has raised c. 40% in the year to 20/07/2026.
Amid this, we’ve been treated to a record-breaking IPO from Elon Musk’s rocket-launching firm SpaceX, which raised $86bn (£64bn) from public market investors in June. Markets have been surprisingly resilient, a fact cheered by both Invesco and Fidelity.
In its mid-year outlook, Invesco said: “The first half has seen a host of events with the potential to disrupt global economies and markets in a world that appears increasingly fragmented. Yet economic data and corporate results suggest the global economy remains resilient.”
The firm said that it expects the global economy to re-accelerate later in 2026, though it cautioned that this depends on when energy starts flowing again, adding that “the longer the Strait of Hormuz remains closed the more challenging the growth and inflation mix will become”.
Fidelity argues that this steadfastness is unsurprising, given markets have “become well-versed in seeing through the noise and recognising upside”. “An immense AI capex cycle, strong earnings, and relatively strong fundamentals across markets have reassured investors that there’s still plenty of alpha to be captured.”
That brings us nicely onto the question of AI, which has, as we said earlier, been powering markets for a few years now, ever since the emergence of ChatGPT. We’ve spoken about the sheer scale of AI spending before; now, we’re starting to get a sense of how things might play out in terms of the ultimate return companies might get from their AI investments.
Question marks remain and that’s to be expected, especially when the ramping up in hyperscaler capex has almost inevitably meant that hyperscalers’ free cashflow is now falling. JPMorgan notes that AI capex has gone from 33% of the hyperscalers’ cash flow from operations in 2023 to an estimated 93% in 2026. Ultimately, the hyperscalers must “demonstrate that demand is sufficient to deliver a positive return on investment and do so quickly enough to avoid placing too great a strain on existing cashflow” if they are to win back investors’ favour.
Fidelity’s Jonathan Tseng agrees, suggesting that either capex will need to come down or revenue and absolute free cashflow will need to go up. He sees good reasons why the latter will be the case. “The total addressable market for LLM spending is no longer the IT budget but the broader wage budget of the business world,” says Tseng.
Many survey-based indicators, such as the Ramp AI Index, have highlighted increasing corporate adoption of AI, said JPMorgan. This is positive, as current tech stock valuations are predicated largely on AI becoming a powerful source of productivity and profitability across the whole global economy.
The firm is also reassured by the fact that we’ve seen a dispersion of returns within tech itself. Indeed, there’s been a near-100 percentage point difference in performance between the best-performing US hyperscaler (Alphabet) and the worst performing (Meta Platforms) in the 12 months to 17/07/2026.
This suggests investors are “scrutinising individual company fundamentals rather than placing options on the overall market, which would be more common behaviour in the late-stage euphoria of a bubble forming”.
It is, of course, still unclear who the ultimate winners will be, and the market will continue to hazard guesses.
The data centre build-out boom is key for Invesco. It thinks that bottlenecks in supply have driven pricing power for many semiconductor names, while simultaneously looking beyond chips and into companies providing networking, cooling and grid interconnection equipment.
In addition, owners of natural gas-fired turbines and nuclear energy are likely to benefit from data centre builders preferring to generate their own energy, while upward pressure will be exerted on prices for commodities such as copper and rare earth minerals, upon which much of the equipment used in data centres relies.
Fidelity sees some value in selected utilities that have exposure to data centre growth, noting that “escalating NIMBYism across the US will drive data centre growth to Texas, where there are no zoning laws outside cities and the state government and utility regulators are highly supportive of data centres”.
The AI discussion brings us neatly onto the question of whether US exceptionalism will continue. We had seen some evidence that non-US equities might stage a comeback while the US underperformed (but still provided positive and eye-catching returns). Emerging markets were at the vanguard of this shift. For now, that looks to have been transitory and the US has retaken the initiative.
BlackRock thinks America will continue to outperform, reiterating an overweight to the US since, particularly US technology as the AI play. “Even if the ultimate [AI] winners are unclear, many are likely to be found [in the US].”
Interestingly, while noting there are specific AI plays outside of the US, BlackRock has downgraded broad emerging market (EM) equities from overweight to neutral after strong performance, given the largest companies in the EM index are tied to the same value chain (AI) as the largest US firms. Within the EM region, it prefers Latin America.
By contrast, Invesco thinks that both EM equities and EM debt will continue to outperform for a few key reasons. One is its exposure to the AI supply chain, noting that demand for data centre products has led to a boom in exports from South Korea and Taiwan in particular. Consensus forecasts for MSCI Korea earnings per share growth in 2026 is over 200%.
In terms of the oil price, there are a couple of possibilities. The higher energy prices go, the more the energy-exporting parts of the EM universe will benefit. If and when the Strait reopens and oil prices fall, this would give a boost to those energy importers, as well as seeing global economic growth re-accelerate, providing a potential boost to EMs.
Invesco’s final reason is that it expects the US dollar to continue falling. It argues that the US dollar is “one of the more overvalued currencies on most measures, and the fact it has not strengthened much in the face of the recent energy shock is telling”.
The firm also thinks the US Federal Reserve will restart its interest rate cutting programme during the second half of the year, which would pressure the US dollar. EM equities tend to outperform developed markets when the USD weakens.
There’s broad scepticism around China and few are shouting from the rooftops about Europe, given the continent’s lack of AI behemoths. JPMorgan calls UK equities “differentiated” with a “relatively attractive profile”, should their forecast of a weaker pound and less hawkish than expected Bank of England materialise. This “supports internationally exposed revenues, while dividend yields, undemanding valuations, and stronger free cash flow generation provide a solid foundation for total returns”, the firm said.
Fidelity said that it was underweight countries and sectors vulnerable to energy shortages such as Japan, but sees appeal in Japanese mid-caps. As Japan’s small-cap segment has outperformed the broader market thanks to shareholder governance reforms, Fidelity thinks mid-caps should start to do well, too. They noted that mid-caps are more domestically oriented, so less affected by geopolitical noise and better positioned to capture recovering local demand.
One other clear theme running through the outlooks is the shifting sands when it comes to the non-equity part of a diversified portfolio. Historically, long-dated government bonds have successfully filled this spot, with the gold-standard balanced portfolio having been seen as 60% equities and 40% bonds.
“A simple split between bonds and equities will not protect investors through all the different inflationary regimes to come in this new era of investing,” said Fidelity.
One big worry is around long-dated government bonds, given the potential for inflation to remain at higher levels, as well as the sheer scale of government indebtedness. BlackRock thinks that after around 30 years of a great moderation in bond yields, we’ve entered a new regime of post-pandemic supply constraints that could keep inflation higher. If this is the case, bond yields that look optically high could prove anything but.
That said, bond yields have now “steadily reset higher around the world, making income an opportunity again”, according to BlackRock. “The key is how investors earn it,” they say. “We prefer pocketing income in shorter maturities over relying on long-term bonds”, for the reasons set out above. Others agree.
Fidelity also suggested considering inflation-linked bonds, which, as the name suggests, have the ability to protect against inflation.
On private credit, Invesco noted that while there are understandable concerns being raised, high-quality direct lending investments offer a relatively attractive risk-reward trade-off.
Elsewhere, real estate offers the possibility for good returns as well as diversification. “With similar volatility to government debt and investment grade credit, real estate has offered better returns over the period since 2005, with small negative correlation on average to other assets, which suggests it has been a diversifying asset,” Invesco said. “Interestingly, given the current environment, our historical analysis shows that real estate performs better than most assets when inflation is rising.”
JPMorgan thinks that if inflationary concerns become more systemic, then “investors will seek protection in assets that can’t be printed”. These include infrastructure (as mentioned), transportation assets, and real estate, which all “sit at the centre of resilience, supply-chain security, energy security, and domestic capacity building”.
“They also offer a useful hedge in a more inflationary world, with tangible replacement value, long-duration cash flows, and potential inflation linkage through rents, contracts, or regulated returns.”
One final asset to consider is commodities, which “has historically helped protect investors through inflationary environments since these are real assets tied to rising input costs, and because of their lower correlations with other assets”, said James Richards, a fund manager at Fidelity.
“For investors concerned about concentration in consensus trades, such as AI capex winners, commodities introduce differentiated return drivers, enhancing portfolio diversification,” Richards added.
Overall, the resilience markets have shown in the face of numerous storms so far this year has certainly reassured most fund groups. Indeed, with expectations of record earnings to come further down the line, “now is not a time to shy away from risk; only to ensure it’s balanced in a well-diversified portfolio that will cushion the inevitable shocks when they come”, said Fidelity.
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]]>As leadership broadened, growth-seekers turned their focus to emerging markets as the main beneficiaries of the hyperscaler spending spree. This proved good business, with the MSCI Emerging Markets Index returning 24% last year, but the best returns were found further off the beaten track, with frontier markets chalking up an impressive 37% return.
Frontier markets may fly under the radar, but they’re home to around 900 million people - more than 10% of the global population - and generate almost 3% of global GDP. Their share of global equity markets, however, is just 0.1%. Even if you widen the universe to include smaller emerging markets (excluding the eight largest emerging markets), the equity market share only rises to 7%, despite representing almost 15% of global GDP.
With leadership rotating away from the US, this imbalance between economic heft and market representation could provide a long-term source of returns for growth investors.
Emerging markets tick the box on geographic diversification, but scratch the surface and they’re primarily another play on the same handful of technology names. The top ten constituents make up 40% of the MSCI Emerging Markets Index, with TSMC and Samsung Electronics alone accounting for nearly a quarter, leaving the index highly exposed to any slowdown in demand from the likes of NVIDIA, Apple, Tesla and AMD.
Smaller emerging and frontier markets, on the other hand, don’t require investors to put quite so many eggs in the AI basket. Their economies are driven by a range of factors - from domestic consumption to export led growth and natural resources to financial services - rather than the fortunes of the global tech giants.
This is demonstrated by the low correlation between frontier and smaller emerging markets: the MSCI Bangladesh Index has a near zero correlation with Chile, Kenya and the Philippines, while the Frontiers index has a meaningfully lower correlation to the S&P 500 than Korea or Taiwan. As a result, they offer genuine diversification from developed market indices.
Frontier and emerging markets have long been seen as the Wild West of investing, dismissed as volatile, fiscally fragile and politically unpredictable, but this perception is increasingly out of date.
Over the last decade, frontier markets have experienced lower volatility in aggregate than even US large-caps, as well as UK and European markets. Emerging markets remain more volatile, but largely because China, Taiwan and South Korea account for almost three-quarters of the index, and the technology sector for nearly half.
In contrast, no single country accounts for more than 10% of the MSCI Frontier & Emerging Markets Select Index, and technology exposure is just 1%. This broader opportunity set helps to smooth returns and reduces reliance on a single theme.
The fiscal backdrop has also shifted, with developed economies carrying significantly higher debt burdens after years of stimulus and rising borrowing costs. Emerging and developing market debt remains below 80% of GDP, compared with more than 100% in the UK and 125% in the US, creating challenges for central banks trying to tame sticky inflation.
A weakening US dollar has added another tailwind, with many emerging and frontier currencies strengthening in 2025, reducing the cost of servicing dollar-denominated debt and improving returns for overseas investors.
Political risk has by no means disappeared, but central bank independence and policy discipline have improved across frontier and emerging markets in recent years. Political developments also tend to be localised, with elections or policy changes in one country rarely spilling over into the wider investment universe.
The opportunity in frontier markets may be compelling but accessing it can be far from straightforward: research coverage is limited, liquidity can be patchy and the political and economic ecosystem backdrop varies widely.
These inefficiencies are precisely where active managers can add value. BlackRock Frontiers (BRFI) takes a different approach to emerging markets by excluding the eight largest economies (with China, India and Taiwan among them) and focusing instead on frontier markets and smaller emerging economies.
These countries have limited ETF coverage, meaning they’re less exposed to the vagaries of investor flows. Valuations also remain attractive: the MSCI Frontier & Emerging Markets Select Index trades at a forward price-earnings ratio of just under 10, almost 50% below the MSCI ACWI.
Managers Sam Vecht and Emily Fletcher draw on BlackRock's extensive global resources to uncover opportunities supported by structural themes rather than being hostage to the fortunes of the Magnificent Seven.
One example is Uzbekistan, a resource-rich economy benefiting from long-term secular demand for commodities, while economic reforms are attracting foreign capital into large-scale infrastructure projects. BRFI has invested in the country’s first IPO of national investment fund UzNIF, which holds stakes in utilities, telecoms, banking and transport companies.
Another theme is financial inclusion: Africa accounts for more than half of global mobile money accounts, yet 1.3 billion adults still lack access to financial services, predominantly in Bangladesh, Egypt, Indonesia and Pakistan, according to LHoFT. The managers have positioned the portfolio to benefit from the continued digitalisation of payments, lending and savings products across underbanked populations.
The trust’s performance is testament to the strategy, with BRFI topping the AIC Global Emerging Markets sector with a 92% share price return over the last five years. Dividends have also become a meaningful part of returns, with the trust yielding just above 3% as earnings growth supports a rising natural income.
In summary, frontier and smaller emerging markets offer something genuinely different: broader market leadership, lower correlations and attractive valuations. As investors look beyond the US and the Asian technology leaders, they offer a credible long term source of growth for investors willing to venture where the index doesn’t.
Data as at 21/07/2026 unless specified otherwise. Returns in GBP.
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]]>Military drums also have a long history, from ancient China, Genghis Khan’s Mongols right through to the 12th century Crusaders and during the Napoleonic Wars. They’re often used as a rallying call. It’s where the saying ‘beating the drum’ originates.
I certainly feel like I’ve been banging the drum for UK mid and small caps a lot recently. They are, surely, too cheap to overlook. One can see the evidence for this in the sheer number of UK companies that are being picked off by private equity and trade buyers who quite obviously see a lot that their public market counterparts don’t.
There are headwinds, sure. The UK political climate remains fraught and uncertain, as a new Prime Minister has just stepped into 10 Downing Street; public sector debt is still elevated and there seems to be no let-up in the rising cost of living, crimping consumers’ wallets.
Yet, plenty of UK companies are thriving and, while the ones that have been left to fester on ludicrously low valuations are being snapped up left, right and centre, there are lots more which are rewarding shareholders with rising share prices.
This gives us some confidence in the outlook for UK smaller companies investment trusts such as Right & Issues (RIII) in particular. Some of RIII’s top holdings have seen spectacular performance recently – and for a trust with such a high-conviction portfolio, this can really move the needle.
Ashtead Technologies is a good, successful example of RIII manager Matt Cable’s investment process in action. Based in Aberdeen, Ashtead rents underwater equipment used to service and maintain offshore wind turbines and energy rigs. Providers of these facilities will rent things that are too bulky and expensive for them to own outright, like remotely operated submarines, underwater cameras and heavy machinery, but crucial for their operations.
Importantly, this equipment needs regular servicing, which Ashtead can deliver that helps to bring in additional, regular revenues above and beyond the rents its collects. It also means Ashtead runs an asset-light business model, giving it higher margins than pure rental businesses tend to garner.
After floating on the stock market at 163p in November 2021, shares eventually soared as high as 893p by July 2024, almost a 450% gain. It then got caught up in the US administration’s tariff pronouncements, as well as worries over the oil price, with shares de-rating by about two-thirds.
Matt has known Ashtead ever since its IPO and some of the open-ended funds within Jupiter Asset Management’s UK equity stable, of which Matt is a team member, were already shareholders.
With shares now looking cheap, Matt met with management in Aberdeen and judged that the fundamentals of the business had remained strong; assessing instead that the share price movement was market noise, Matt added it to the RIII portfolio, with an expectation that plenty of patience would be needed.
Yet, as the market has finally caught up with Matt’s view that Ashtead remains a high-quality operator – and, of course, conflict in the Middle East has contributed to a rising oil price – shares have performed strongly, up c. 42% since the start of the year, as of 20/07/2026.
Other successful investments in recent times include the groundworks engineer Keller, which has seen its share price double in the year-to-date; Colefax, which designs and supplies home furnishings; and Hill & Smith, which makes safety components for infrastructure such as road crash barriers. Shares in the latter two are up c. 50% and 40% respectively this year.
That’s not to say that RIII isn’t benefiting from M&A activity. There were a total of four bids for companies held within its portfolio last year – Reynold’s, Alpha Group, JTC and Treatt, with three of those completing. There’s been interest in another, Gamma Communications, too.
It’s a double-edged sword, of course – having companies being bought-out contributes to performance and helps to realise some value, yet it potentially hinders long-term returns, since these companies are obviously seen as being worth more than the market is currently pricing in.
Still, it goes to show the concentrated and high-conviction nature of Matt’s investment process, which we think is a real appeal – each of the 20 to 25 stocks that are in the portfolio at any one time have a sufficiently high weighting so as to have a material impact on performance.
This, of course, brings some potential pitfalls, particularly as one can imagine it will see more volatility over time. However, the investment trust wrapper really comes into its own here, as it means RIII can cope with and even take advantage of that volatility.
Matt seeks companies with classic quality characteristics, including high returns on capital, solid cash generation and strong margins, as well as strong brands and high-quality assets. There’s also an emphasis on competent management teams.
Hence, the portfolio is heavily tilted to quality companies, but there’s also a bias towards value, the companies held in the portfolio must be available at attractive valuations.
There’s a clear bias towards industrials businesses, though Matt still looks to reduce concentration of risk by investing across a range of sectors. That’s helped by a top-down overlay and risk management handled by colleague Tim Service.
We think that RIII is a unique proposition within the UK smaller companies space. Its quality-value approach strikes us as attractive within a space we see as rife with world-leading companies trading at unfairly depressed levels. It also benefits from relatively low charges and a progressive dividend policy resulting in a c. 2% yield.
We see the re-establishment of the trust’s share buyback authority, which had previously been blocked by a large shareholder, as being a potential gamechanger, too. It may have little impact in the near term, but we think this should help to narrow the discount over time, leading to positive shareholder returns.
For a while now, we’ve seen real scope for strong returns from the UK small-cap segment and will continue to bang the drum, despite not knowing what the exact catalyst for a re-rating will be. In the meantime, RIII should see its concentrated and high-conviction portfolio continue to deliver for shareholders, ready for that turning point.
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]]>Now, we’re not downplaying the profound impact AI is going to have; we think it will be revolutionary, powering productivity gains and helping new stock market winners emerge. However, we’re at the point where the haves (those stock markets with significant AI exposure) are beating the havenots disproportionately.
Take Asia, a continent of almost five billion with a total GDP of $40bn. As AI has dazzled, investor attention has been firmly focused on Taiwan and South Korea, supported by strong demand for semiconductors, AI infrastructure and advanced hardware.
This time last year, the MSCI Korea Index was trading on a cyclically adjusted price to earnings (CAPE) ratio of just under 15×; today it’s climbed to c. 45×, higher even than the MSCI USA Index’s c. 40×. Taiwan’s CAPE is higher still, at c. 56×.
We fully believe that the boom for both these countries’ stock markets is warranted. The booming demand for products made by the likes of Korea’s SK Hynix and Taiwan’s TSMC will no doubt drive future earnings for their respective country indices higher than ever before, making them look cheaper on a forward earnings basis.
We do, though, think things have gotten slightly carried away. Investors’ myopic focus on the AI powerhouses of the US, Korea and Taiwan means they are at risk of missing a whole world of opportunity to add diversification away from the increasingly pricey-looking AI trade.
The UK small-cap segment certainly stands out from a valuation perspective, but it must be acknowledged that it’s hardly a bastion of technological innovation. For those seeking both above, we think China should be seriously considered. China is not only cheap on a forward price-to-earnings basis, trading at c. 10×, but the CAPE ratio is a lowly c. 14× to boot.
Innovation and progress in China are thriving, encompassing not only AI (which people seem to have overlooked), but other exciting areas such as robotics, automation, advanced manufacturing and what is often referred to as "physical AI" – the application of artificial intelligence in the real world.
The fact that valuations ascribed to the Chinese are not only low in absolute terms, but also relative to many emerging market peers (the MSCI China Index trades at a c. 30% PE discount to the broad MSCI Emerging Markets Index).
This shows, in our view, that the market is underappreciating the global competitiveness and innovation capabilities of many Chinese industrial companies, particularly those moving up the value chain in the areas we’ve already mentioned.
Hyperfocus on semiconductors and memory chips is all well and good, but the expansion of AI infrastructure also requires substantial investment in power generation, energy management and electrical equipment – areas in which China is increasingly leading.
Companies across solar, batteries, inverters and power electronics are participating in this supply chain, leveraging manufacturing scale, engineering expertise and vertically integrated operations to capture new sources of demand. This adaptability is often underappreciated.
At a time when the AI boom seems to be becoming narrower and focused on fewer companies, China's innovation story is becoming increasingly broad-based. Somewhat counter-intuitively, we think this makes stock selection even more important, since there will be winners and losers along the way.
Fidelity China Special Situations (FCSS) provides exactly that. Dale Nicholls has been managing FCSS for over 12 years now, having worked with the trust’s first portfolio manager, Anthony Bolton, for a few years before taking over full management responsibilities.
Dale also manages the open-ended Fidelity Funds Pacific Fund, giving him a regional perspective on markets. We think the trust benefits from this as it helps to build a picture of the competitive position of companies in China.
Based in Hong Kong and Singapore, Dale spends a lot of time speaking with management teams and competitors of companies in which he invests or may choose to invest, engaging with hundreds each year. He also draws on the work of 16 dedicated Greater China analysts based in Shanghai and Hong Kong.
FCSS has a flexible, all-encompassing investment process that offers multiple sources of alpha, from not only capturing the opportunities in listed markets, but also picking from the best of the privately owned universe, offering an all-round differentiated option for investors.
This process has delivered substantial outperformance over long periods of time and, as investors’ focus starts to become less myopic and broaden out their search for sources of innovation, we see considerable scope for future returns, enhanced by the current discount, which currently sits at c. 7%.
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]]>After months of speculation, SpaceX finally blasted itself into public ownership, sending Elon Musk into trillionaire status (not that he was short of zeroes to begin with). The shares opened like a Falcon 9, jumping from the $135 IPO price to $225 and leapfrogging Microsoft and Amazon along the way. But what goes up tends to come down, with SpaceX settling only slightly above its IPO price (more of which later).
US equities also lost altitude, with the tech-heavy Nasdaq Composite bearing the brunt with a 3% fall, thanks to renewed hostilities in Iran, a more hawkish rate outlook and a sharp sell-off in chipmakers. Tesla and Microsoft remain in negative territory for the year, proof that even the Magnificent 7 can look distinctly average when sentiment turns.
Meanwhile, on this side of the pond, the FTSE 100 eked out a rather unstarry 2% gain, possibly powered entirely by sales of air-con units and England flags. Could this be the year when we finally get to add another star to our shiny shirts? By the time this is published, we’ll probably be resigned to arguing whether Messi’s winner should have been disallowed under rule 14.2 of the VAR regs.
So, which shares and funds scored with UK investors in June, and which were shown a red card?
These were the most (and least) popular shares with UK retail investors on three of the largest investment platforms last month:
Britain’s favourite moonshot
SpaceX (SPCX) was always destined to be the Marmite IPO of 2026, but UK investors piled in with gusto. Early birds enjoyed a 67% pop within days, briefly catapulting SpaceX into the $3 trillion club alongside NVIDIA, Apple and Alphabet, before the share price plummeted back to the $145 mark.
There’s plenty in the bull column: SpaceX cornered 80% of global-mass-to-orbit in 2025, and Starlink has grown into a serious revenue engine, boasting over 10 million subscribers across 160 countries. And then there’s Grok - the “truth-seeking” AI model apparently designed “to enable humanity to understand the universe”. Any clearer? Me neither.
Listing prospectuses are usually drier than the current state of British lawns but Elon Musk is not a man for understatement. One imagines the SEC approval bod reaching for the smelling salts upon hitting the line about “extending the light of consciousness to the stars”. Still, once you get past the gazillion photos and cosmic mission statements, the financials are a useful reality check.
SpaceX reported $19 billion of revenue in 2025 and a $3 billion operating loss, though it did manage positive operating cashflow. Starlink accounted for over 60% of revenue and was the only division firmly in the black, with space operations contributing just over 20% of revenue and AI making up the remainder. At current levels, investors are effectively paying around 100 times revenue which is punchy even by Silicon Valley standards.
And there’s plenty for the bears to chew over: launch schedules remain unpredictable, rocket reuse rates are critical to margins and Starlink’s capex requirements are not for the faint-hearted.
Still, Tesla is a reminder that valuations can be driven far more by future prospects than earthly fundamentals. While some UK investors locked in early profits, plenty seemed happy to strap in for the ride.
Micron Technologies (MU) made its début as the most-bought stock after a near-700% rise over the last year, with some investors taking profits and others buying the 20% June dip.
The memory-chip supplier is cashing in on supply constraints, with the US tech mega-caps queuing up to reserve capacity for its high-performance memory chips used to train and run the likes of Claude and ChatGPT. Micron has secured 16 long-term strategic agreements with customers, including upfront payments to lock in supply and pricing floors shifting some of the risk to the end user.
Unlike some of its AI peers, Micron’s financials justify the enthusiasm. Net income surged 15-fold year-on-year in its latest quarterly results, and gross margin more than doubled to 85%, reflecting its impressive pricing power.
And a brief mention for NVIDIA (NVDA), still a perennial favourite of UK investors. It’s up around 10% this year, which isn’t too shabby, but returning to normal after such an extraordinary run is never easy. NVIDIA still boasts a commanding share of the GPU market, not to mention the challenge of escaping its proprietary CUDA ecosystem.
But frenemies Meta, Microsoft and Alphabet are pushing ahead with their own chip programmes, and the company faces the simple challenge of sustaining growth as a multi- trillion-dollar company. Analyst 12-month price targets range from -12% to +146%, with a midpoint of 40%, showing just how divided expectations have become.
It’s perhaps not surprising that some investors decided to cash out, even if plenty of others still treat NVIDIA as the default AI play.
Elsewhere, investors loaded up on the near-8% dividend yield on offer from Legal & General (L&G) though current share price targets may sow a few seeds of doubt.
Rolls-Royce (RR) saw sells outnumber buys, despite its recovery story. Rising defence spending, a recovering civil aerospace division and potential growth in narrow-body jets all strengthen the investment case. That said, re-entering the narrow-body market requires multi billion pound investment and a willing partner to take on one of aviation’s most competitive markets.
And talking of aviation, some easyJet (EZJ) shareholders chose to pre empt the takeover fight to lock in gains. Private equity firm Apollo gazumped Castlelake a week ago, raising the prospect of a bidding war. easyJet has lagged rivals such as IAG and Ryanair since the pandemic, making its slots at premier European airports increasingly attractive to would be bidders.
There’s not much left to say about Scottish Mortgage (SMT) after 18 months at the top (possibly outlasting Keir Starmer?) but its latest factsheet did reveal one interesting detail. Post-IPO, SpaceX now accounts for 26% of its portfolio, despite SMT’s typical 8% cap. With the trust tied into the customary six-month lock-in, it will be highly sensitive to SpaceX’s early public fortunes, though it has provided the headroom to resume investing in unlisted holdings.
Tech remained the dominant theme across the board, with Polar Capital Technology (PCT) and Allianz Technology Trust (ATT) attracting inflows. With performance diverging across the Magnificent 7, turning to active management to separate the AI winners from the also-rans seems a sensible move. For steadier fare, Temple Bar (TMPL), JPMorgan Global Growth & Income (JGGI) and City of London (CTY) continued to offer income friendly ballast.
But June did produce one new entrant: Fidelity Special Values (FSV). The trust takes an unapologetically contrarian, value focused approach across the UK market cap spectrum, rotating out of big tobacco, gold miners and defence stocks into more GDP sensitive names of late. This strategy has served it well, comfortably topping the AIC UK All Companies sector over 1, 5 and 10 years.
July’s focus shifts from Big Tech earnings to the supply chain behind them. As the world’s leading chip manufacturer, all eyes will be on TSMC’s mid-month reporting, with investors watching closely to see whether capacity is keeping pace with demand.
Closer to home, bond markets remain twitchy over the small matter of a new prime minister. There was a palpable sense of relief when Andy Burnham pledged to uphold his predecessor’s fiscal rules - until it emerged he couldn’t (or wouldn’t) list them. With detailed spending plans unlikely before the Autumn budget, we may be waiting a while on that front.
The good news is that investors don’t have to wait for the usual “difficult decisions” to roll in before making a dent in this year’s tax-free allowances. To help with this, we’ve produced guides on our pick of the best ISA platforms and best SIPP providers.
All data as at 14/07/2026 unless stated otherwise, returns based on share price total returns.
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]]>On the other hand, in the alternatives space the picture is different. We have seen some narrowing, with many trusts making big moves back into a narrower trading range, but in aggregate they are still some way short of their pre-2022 normality. The trend is clear though, with corporate activity of all sorts thinning the field and seeing assets come out of the sector, creating a more advantageous environment for the survivors. Here we look at those alternative trusts we think are most likely to see a sustained, significant discount narrowing back to pre-crisis levels.
]]>Today, the phrase one-trick pony refers to any one or thing with said limited repertoire. One could argue that the US stock market has been somewhat of a one-trick pony (albeit a very impressive one) thanks to the artificial intelligence (AI) boom.
AI is having an impact on both sides of the coin: companies within the AI supply chain – from the semiconductor makers to the data centre operators – have been anointed winners, while the formerly sexy software-as-a-service firms are now seen as AI losers. Everything else just seems a bit ‘meh’, as the kids might say.
By contrast, emerging markets have much more in their quivers than just AI. That’s not to downplay the importance of the AI supply chain to the EM story in the slightest. Countries such as Taiwan and Korea, which are home to some semiconductor powerhouses, are thriving.
This has helped the MSCI Emerging Markets Index return more than twice as much as the MSCI USA Index over the past 12 months – performance that has come on the back of surging share prices from the likes of TSMC, SK Hynix, Samsung Electronics and Delta Electronics.
The first point we’d make is that companies within the EM AI supply chain remain significantly cheaper than their US counterparts. SK Hynix, for instance, trades on a single-digit forward price/earnings ratio despite an 765% 12-month share price gain.
Secondly, there is a plethora of other tailwinds driving our positivity on emerging markets moving forward. Developing nations are expected by the International Monetary Fund to see real, annualised GDP growth of 4.1% between 2026 and 2030, twice as high as the US and c. three times as fast as the Euro area and the UK.
This is underpinned by healthy demographics and increasing life expectancy, while rising working-age populations are leading to a fast-growing middle class, presenting opportunities in the consumer space.
In addition, rising educational standards and embracing shareholder friendliness are reshaping the talent pool and leading to more entrepreneurial and technologically innovative business leaders.
China is already the world leader in renewable energy technology. China spends more than 2.6% of its GDP on research & development (R&D), a similar amount to the EU and just below the US’s 3.4%, while Chinese researchers publish more quantum-related research papers annually than any other country. Chinese AI companies issue more patents than any other country and in total, China accounted for over 50% of the total patent applications submitted.
Identifying and taking advantage of these myriad structural drivers is where active fund managers can really earn their stripes. While one can rely on a fire-and-forget low-cost index tracker to ride America’s mega-cap-AI-trade, it’s worth getting creative when it comes to EMs.
The scale and heterogeneity of the EM universe create a rich source of potential alpha for skilled active managers with a large, on-the-ground analyst team. This, we think, is what makes JPMorgan Emerging Markets Growth & Income (JMGI) such a compelling option.
Austin Forey has managed the trust for over 30 years, navigating multiple market cycles from the Asian crisis to the global financial crisis; co-manager John Citron adds a further decade of EM experience. Austin and John can draw on JPMorgan’s extensive global research network of more than a hundred professionals across nine countries.
The team conducts over 3,000 company meetings each year, building long-term relationships with management teams to identify the highest-quality opportunities.
JMGI’s bottom-up, quality-focused strategy favours well-run, profitable businesses capable of compounding growth. This leads to a long-standing tilt towards technology, including a decade-plus holding in TSMC, as well as industrial, consumer and financial names.
The managers think that higher savings rates across EMs and increasing penetration of life insurance should benefit the likes of AIA, a Hong Kong-listed life insurer.
Looking further off the beaten track, an overweight in Brazil is driven not by commodity producers, but by the likes of Nubank, the world’s largest digital bank, and Weg, an industrial powerhouse.
While growth is important to JMGI’s managers, so is valuation discipline, which is what has led to the trust being in the unusual position of being underweight India, having taken profits when valuations were looking stretched. That has benefitted relative performance as India has performed poorly and the managers now have a long list of Indian companies they would like to own again once the price is right.
Perhaps we’re being harsh on the US– it is the pre-eminent global stock market and a country where capitalism and innovation continues to thrive. However, we think at this juncture it’s time to consider branching out and backing the next wave of innovation, which may come out of an EM complex that is thriving.
JMGI aims to tap into this innovation with an approach focused on finding growth opportunities, yet has adopted an enhanced dividend policy, targeting annual dividends of 4% of the last financial year’s losing NAV, payable quarterly. This makes the trust an attractive vehicle for investors seeking exposure to high-quality companies across EMs with the added bonus of a regular income stream.
Buying into such a growth story at close to a 10% discount could also appeal to those who think these markets are due for more attention, and the addition of an EM fund could add valuable diversification to your portfolio, ensuring it’s not at risk of being a one-trick pony.
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]]>Between 1926 and February 2025, for instance, 31% of the overall returns from the S&P 500 came from dividends, according to S&P Global. In the 1940s and 1970s, half of the average monthly total return from the US index came from dividends.
In recent decades, dividends have seemingly become less important, as high-growth technology stocks that pay low or no dividends have soared. Indeed, just 14% and 15% of the average monthly total returns during the 1990s and 2010s respectively came from dividends. However, we think that dividends are likely to play a bigger role moving forward, potentially bringing back the glory days.
In the UK, we’re blessed with a plethora of companies happy to pay out a certain proportion of their profits each year in dividends, rewarding shareholders for their backing. Europe is another region that pays an above average dividend yield, as is Australia.
One collection of countries that is often overlooked when it comes to income, though, is emerging markets. Indeed, global emerging markets offer a higher dividend yield than both Japan, which is becoming a rising force in income-land thanks to its corporate governance reforms, as well as the US (which, admittedly, isn’t a difficult feat).
We are starting to see a growing emphasis on shareholder returns right across the emerging market universe, from Chinese firms that are increasingly distributing free cash flow via dividends and share buybacks, through to South Korean corporates that have shown improvements in their dividend culture. In fact, dividend payments from emerging market companies have grown at a compound annual rate of c. 3.2% between 2005 and 2025.
This is important because, buoyed by the artificial intelligence (AI) trade, emerging markets are making a comeback after a decade or more of disappointing relative returns. The MSCI Emerging Markets Index has returned more than the MSCI USA Index in pound sterling terms over both one and three year periods to 23/06/2026.
Many of the companies that make the semiconductors needed to power AI now constitute a large part of the EM universe, potentially giving the MSCI Emerging Markets Index a real chance of challenging America’s dominance of world markets.
Unlike the US, though, one can get meaningful exposure to the AI chip chain through emerging markets while also receiving a decent dividend yield. Indeed, as of 31/05/2026, the top five holdings within JPMorgan Emerging Markets Dividend Income (JEMI) were part of the AI chain, representing c. 32% of the overall portfolio. As one can imagine very few, if any, US equity income funds will give you exposure to the likes of Nvidia, Broadcom or Micron Technology.
Of course, the emerging market story is far from a one-trick pony. Emerging markets are real economic growth powerhouses, as you can see from our recent feature article.
While we’ll admit that GDP growth isn’t a pre-requisite for stock market growth, the fast growth of these emerging economies provides the region with some structural growth stories: demographics are a real tailwind, the middle class is growing as populations become richer, and entrepreneurship is thriving, as is technological innovation.
Throw in exposure to the commodity-rich plains of Latin America, and emerging markets provide exposure to myriad exciting growth trends in what is increasingly looking like a new investment frontier – as well as a tricky geopolitical backdrop.
JEMI’s outperformance over the past 12 months has largely stemmed not from its holdings in chipmakers but its exposure to banks, which have benefited from a higher interest rate environment. An underweight to India also contributed positively to relative performance.
Manager Omar Negyal has a bottom-up, quality-value approach, which means he has been reducing the trust’s exposure to the information technology sector, particularly AI-related names, given their now-elevated valuations, taking profits and recycling them into other areas.
Coming into the portfolio have been companies exposed to the Chinese consumer such as hotel management firm H World, as expectations are for improved consumption in the country, as well as those commodity-related companies, such as Brazil’s Petrobras.
JEMI uses the closed-end structure well, too, investing across the full market-cap spectrum, including companies offering lower yields as well as less-liquid names that open-ended peers often can’t access. This helps the trust to hit its dual mandate of providing a combination of income and capital growth.
JEMI currently barbells its portfolio, with c. 60% invested in companies yielding between 3% and 6%, including names such as South African gold miner Gold Fields; c. 20% in lower-yielding names with higher growth prospects hopefully leading to higher dividends over time, including AI plays such as Samsung Electronics and ASE Technology; and c. 20% high-yielding positions such as Thai investment bank Tisco.
JEMI’s dividends are paid naturally, i.e. from income received from portfolio companies, although it does retain the flexibility to draw on revenue reserves or capital profits to support dividends where needed. In JEMI’s previous financial year, dividends were more than covered by earnings, meaning the board could add to its revenue reserves buffer, which stood at £13.8 million as at 31/07/2025, giving the trust dividend cover of c. 0.9x.
Emerging markets have long been overlooked by income investors, denying them a large portion of the world’s GDP and population, as well as pockets of stock market growth. However, the changing dynamics we’re seeing means the cohort can no longer be ignored.
JEMI’s c. 2.9% yield might certainly reinforce the fortress that most income-focused readers will already have built around their holdings within the UK and potentially the European stock market, and with a steady hand at the tiller in manager Omar, who has almost three decades of experience in global equity investing.
Additionally, its exposure to the seemingly inevitable long-term value creation of companies within the AI value chain only adds to that protection, making JEMI a good way of allowing investors to gain exposure to this growth potential without compromising on their income requirements – and all at a c. 10% discount to boot.
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]]>Clearly Schroder European Real Estate’s (SERE) market cap, less than £100m, and the French Tax Authority’s notice of adjustment have made it difficult for many investors, or potential merger candidates, to take a view on SERE. There is a strong and well-documented desire for REITs and investment trusts to be much larger than this and M&A over the last few years has often been focused on achieving scale, rather than the short-term extraction of value. This situation is acknowledged by SERE’s chair in the results statement and comes despite, in our view, a backdrop in various European markets actually looking relatively constructive for some real estate sectors such as industrial and logistics, a key focus for SERE.
Given that, a managed wind-down looks like the most sensible option, as it comes against that constructive backdrop and gives time to complete asset management initiatives that could enhance asset sales, but also retains some optionality, as SERE will likely remain listed for some time. Since the announcement the share price rise of about 10% suggests that the market thinks this is a good outcome, though the manager believes that the discount may still be overly conservative, noting that the revised managed wind-down strategy, subject to investor approval, shifts the investment profile from an income focus to a total return approach and could lead to a further re-rating.
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]]>Today, one could argue that companies are becoming more like fine wine, rather than the stuff that’s made to be drunk. That is, they are peaking and becoming publicly listed later in life, rather than being built to IPO quickly.
For a long time, newly founded businesses were in a race to become publicly listed. There was a real cache in having your business listed on, say, the New York or London stock exchange. It was almost seen as the pinnacle landmark for a company.
Indeed, in 1999, the median company was young and immature, being just four years old and $493m in size at IPO. Apple had been founded four years before its 1980 IPO, as was Netflix when it floated in 2002. When Amazon became a listed company in 1997, it was not even three years old.
Fast forward to more recent times and private companies are going the other way: the older, the better. Spotify was 12 and Airbnb was 13 when they listed in 2018 and 2020 respectively; Palantir was a 17-year-old spotty teenager when it floated.
The median company that floated on the stock market between 2020 and 2024 was 12 years old and worth more than $2trn. These numbers are only going up. SpaceX was a full-on adult, at 24 years old, when it became the biggest IPO ever in June.
Still, the point stands: if you want to get exposure to some of the biggest and best companies in the world these days, you need to invest at least some of your cash in private equity (PE). This is a double-edged sword. PE is not an easy asset class to get access to, since the top funds require millions of pounds in initial investment that will get locked-up for long time periods.
Investment trusts democratise access to PE. The closed-end nature of trusts and their long-term investment horizon means they can provide access to an inherently less-liquid asset class while giving shareholders liquidity and a low-priced entry point.
Funds that combine exposure to private companies alongside a sleeve of publicly listed stocks appeal to those with a growth-oriented mindset, as do the pure listed PE trusts, which pair well with mainstream global equity exposure, but there are options for those preferring a less volatile ride, such as Hansa Investment Company.
Hansa’s exposure to private assets appeals to us, especially when paired with the rest of its portfolio. One could argue Hansa is now the ultimate one-stop-shop investment: a diversified, multi-asset portfolio with the goal of generating long-term capital growth from a mixture of investments spanning publicly listed equities, bonds, hedge funds and private assets.
It’s this private asset sleeve that we find so compelling and differentiating. Hansa has been investing in PE since 2023 and had already committed to 11 PE funds from nine different managers, but it was Hansa’s combination with Ocean Wilsons (Investments) Ltd (OWIL) that demonstrates the long history the investment company has in this area.
OWIL started investing in PE over 20 years ago and the combination between the two entities brought its mature PE portfolio into Hansa. Hansa Capital Partners (HCP) was the investment advisor to OWIL and investment manager to Hansa throughout the entire life of their PE programmes. HCP CIO Alec Letchfield launched the current core/satellite approach in 2014, and commitments made by OWIL since that time have returned 259.7%, versus 198.1% for the MSCI All Country World Index (including FM). These assets are now held in Hansa’s portfolio.
All the PE funds and managers Hansa invested in were also in OWIL and both entities followed Alec’s core/satellite approach. As HCP is now the investment advisor to Hansa, nothing fundamental changes post-combination.
What it does do is give Hansa more scale, while also automatically increasing Hansa’s exposure to private assets. Prior to the combination, private assets accounted for 0.6% of Hansa’s assets. Following the combination, private assets amount for c. 10%, and over time the plan is to grow it to c. 20%.
Hansa invests in general partner (GP) structures as management believes their fixed-term structures create a greater incentive for the GP to invest in, grow, then sell assets. It does not invest in semi-liquid structures, where there’s a mismatch between investor redemptions and underlying asset liquidity; avoids investing in evergreen, closed-end structures given their exposure to public market volatility; and does not do direct private company investment, which is hard and requires a specialist team and can be a graveyard for investors.
The core of Hansa’s PE approach consists predominantly of developed market buyout funds run by some of the best managers. These include KKR North America, which operates an upper-middle-to-large-cap buyout strategy, and TA Associates, a growth manager. TA invests globally with a focus on the US and targeting the technology, healthcare, financial services and business services sectors. Top investments the TA team has participated in include Aldevron, which provides tools to the life sciences sector and was acquired by Danaher for c. $10bn in 2021; and insightsoftware, which provides analytics and performance management solutions for a range of corporates.
The satellite sleeve is focused on more specialist areas that have higher potential returns. HCP first invested with Kholsa Ventures, founded by Vinod Khosla, the co-founder of Sun MicroSystems, in 2021. Khosla is one of the world’s leading venture capital investors, investing in areas such as AI, medtech and robotics. Notably Khosla was in at the ground floor of some of the most exciting growth stories of recent years such as OpenAI, Impossible Foods and Stripe.
This all plays into Hansa’s unique strategy that clearly differentiates it from peers. Alongside the private equity sleeve sits a portfolio largely made up of specialist active managers that are often unavailable to most investors as well as lower-cost broad market exposure, a direct equities sleeve and some more all-weather, diversifying funds.
In addition, Hansa exhibits strong alignment of interests with shareholders, with management seeking to grow intergenerational wealth over the long term; a new share buyback policy aimed at tackling a wide discount that is yet to recognise Hansa’s new, more simplified structure.
Like a fine wine, Hansa seems to be maturing well and stands out to us as an interesting proposition for investors wishing to look beyond traditional multi-asset funds, particularly on a c. 41% discount that we suspect is going to narrow in the coming months and years, making future long-term returns look potentially significant.
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]]>Whilst these results only cover one year in Hansa Investment Company’s (Hansa) storied history, they are arguably some of the most significant, with the corporate activity that has completed creating a considerably different investment proposition than what was on offer at the same point last year. We have covered these in more detail in our recent note, although the key takeaway is that Hansa is now a much more straightforward offering for investors, and is now a diversified, multi-asset portfolio with the goal of generating long-term capital growth.
We think this profile should appeal to a wide range of investors, with the mixture of different asset, selected by an experienced and specialist team providing a “one-stop shop” solution. This looks particularly attractive at this juncture in our view due to the wide discount the shares currently trade at. The discount widened as the NAV jumped on the completion of combination, demonstrating investors have arguably been slow to react to the positive changes. Whilst the discount has narrowed slightly since the results were published, the current level is still excessive, in our view, and still reflects backward-looking hesitancy, rather than a more optimistic take on the future potential following the changes.
On a technical level, the current elevated cash levels make the effective discount even wider. Alec is allocating some of this cash towards the private assets, albeit the timing of this could prove very astute, with the manager capitalising on the volatility present in private assets in recent years. Opportunistic purchasing such as this could provide considerable long-term gains for Hansa, especially in private assets which have generally outperformed over the longer time horizons that Alec takes when making investment decisions.
One potential catalyst for the discount to narrow could be the recent promotion to the FTSE 250 Index. Historically, this has shown to be a positive contributor to liquidity as it attracts passive money, which we would expect to happen again. Furthermore, with discounts narrowing across the investment trust sector more generally, Hansa’s current rating looks particularly anomalous, and we believe it is just a matter of time before this is recognised by investors. As a result, both the near- and longer-term investment cases for Hansa look particularly compelling in our view.
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]]>It is potentially, one of the best nicknames ever invented and goes to show the genius of a group of people who are mainly depicted (unfairly, in this football fans’ humble opinion) as vulgar hooligans. Not only was it an excellent play on words, it was a fairly accurate description of a defender who could pretty much play anywhere across the back line.
Investing oneself is often a time-consuming pastime and we sympathise with people who’d rather fill their downtime with other things, be that gardening (which is my new hobby), watching sports, travelling – or all the above.
One can, of course, opt for the path of least resistance and simply buy a fund tracking global equities, but with a heavy tilt to a rather expensively valued US market one might prefer some diversification in case the worst happens. Bonds, gold, real assets and currencies can all play a role here, but often it’s difficult for ordinary investors to understand those roles and the correct weightings each should be given in a portfolio.
Fortunately, there are plenty of one-size-fits-all options for hands-off investors in the investment trust realm. Crucially, they provide a broad spread of risk profiles with a similar mandate: to provide real, long-term investment growth.
While a low-cost global passive fund still fits the bill for many growth-oriented investors, we worry that they’re nowhere near as diversified as they were, say, 10 years ago, given the relentless outperformance of US stocks in that time.
For those keen to chase the growth that stock markets can generate but spread their bets a bit further, we think that CT Global Managed Portfolio Growth (CMPG) is a good option. CMPG focuses unashamedly on maximising capital growth and managers Adam Norris and Paul Green continues to increase its equity exposure, most significantly in Asia and emerging markets, given tailwinds such as attractive valuations, strong earnings growth potential, and a weakening US dollar.
Adam and Paul have done similar on CT Global Managed Portfolio Income (CMPI), the trust’s income share class which offers an attractive c. 6% dividend yield and thus plays an equally important role for investors looking for a regular income while retaining a hefty and diversified exposure to equities.
One beneficial quirk of these trusts are that once a year, shareholders have the option to switch between share classes at net asset value without incurring UK capital gains tax, enabling those not investing through a tax-exempt account to adjust their investments over time in line with their needs without triggering a tax liability.
We see Hansa Investment Company as offering a rare opportunity to invest in a diversified, multi-asset portfolio with the goal of generating long-term capital growth with the potential added bonus of a special situation that could enhance future returns.
Unlike CMPG/CMPI, Hansa has built the bulk of its portfolio from specialist and unique active managers that are often unavailable to most investors, including private asset funds, alongside lower-cost, broad market exposure and more all-weather, diversifying funds.
The trust headed up by Alec Letchfield, CIO of Hansa Capital Partners, takes an intergenerational approach, and following a recent combination with former holding Ocean Wilsons Limited has become a greatly simplified proposition.
More immediately, there is also the attraction of the current discount which, at c. 40%, is exceptionally wide in its own right (albeit narrower than the c. 47% it had been in May) but even more so when considering the elevated level of cash currently on the balance sheet and the liquidity of the underlying assets. We believe this discount reflects an outdated view of Hansa and its previous complexity and any further narrowing could juice returns.
Managers Dr Sandy Nairn, Alan Bartlett and James Sym take a highly flexible approach for Global Opportunities Trust (GOT), with the goal of generating attractive real returns, low correlation to global markets and downside protection across a market cycle.
GOT’s managers have a “go-anywhere” approach and combine a portfolio of individual equities such as Sanofi, Unilever and Dassault Aviation cash-like products such as government bonds and money market funds. The cash-like part of the portfolio can be as much as 50% and is c. 40% today, reflecting high equity valuations and the managers finding a lack of opportunities in stock markets.
In addition to the fact that GOT has no correlation to global equity markets over a five- to eight-year period, like Hansa the current discount of c. 17% is statistically noteworthy, but when accounting for the c. 40% cash level, it becomes even more interesting and is statistically noteworthy, as the effective discount on the equities is c. 28%.
In our view, the diminished diversification inherent within market-cap weighted global stock indices means they no longer provide investors with a one-size-fits-all exposure they might hope they would. With valuations at elevated levels, too, any bad news when it comes to the power and trajectory of the artificial intelligence story has the potential to have an outsize impact on future returns.
By contrast, many investment trusts have been carefully curated to be one-size-fits-all to help defend investors’ savings against any disruption we see within equity markets. We think investors should no longer overlook these options.
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]]>But perception can bear little resemblance to reality. True, NVIDIA has served up a stellar 900% five-year total return but I suspect most investors wouldn't have pointed to the even more stellar 2,300%-plus return from UK small-cap Filtronic. Neither is the UK a one-trick pony, with almost 50 listed companies eclipsing Alphabet's 200% return (the second-highest Magnificent Seven performer).
We Brits, it must be said, have a complicated relationship with self-deprecation. While our flag-waving cousins across the Atlantic wear their national pride on their sleeves, we tend towards a more complex emotional register. Which is to say, we're rather good at talking ourselves into a cycle of perpetual pessimism: the weather, the economy, our prime ministers and, so it would seem, our own stock market.
Patriotic sentiment aside, the numbers suggest investors may well be missing a trick.
That said, the most powerful argument for UK small caps isn't about the last few years but their outperformance over a much longer time horizon.
Over the last seventy years, UK small caps have delivered an annualised real return of 9% (after stripping out the flattering effects of inflation). By comparison, the all-singing, all-dancing US equity market delivered 7%, followed by 6% for global equities, while house prices (that most cherished of British conversation topics) managed less than 3%.
And the returns become even more striking further down the market cap spectrum: investing £1,000 in the Deutsche Numis UK Large Cap Index in 1955 would have grown to £1.9 million by the end of 2025 (on a nominal total return basis). Possibly even enough to buy a garage in Chelsea.
But that same £1,000 invested in the very smallest UK companies, the DNSC 1000 index covering the bottom 2% of the listed market, would have delivered a remarkable £29 million. Provided you have the patience to let it work its magic, the power of long-term compounding is difficult to argue with.
So why have UK small caps outperformed their large cap peers?
Well, it starts with a simple arithmetic advantage: doubling revenue is significantly easier from a £50 million base than the lofty perch of a FTSE 100 giant already commanding a substantial market share.
But it's also about culture. Smaller companies tend to have flatter management structures, faster decision-making and greater agility to capture market opportunities without the drag of corporate bureaucracy.
At this point, we should probably address the elephant in the room: it’s fair to say that the UK economy isn’t in the rudest of health. But it’s still the fifth-largest economy in the world and it's important not to conflate buying British stocks with buying the British economy. Many UK small caps have carved out highly successful niches in high-growth markets, with a growing number generating the majority of their revenues from overseas.
Meanwhile, UK small caps are still trading at a discount to long-term averages and international peers. Despite its superior long-term track record, the MSCI UK Small Cap Index currently trades 25% below the World Small Cap Index. Should investor sentiment towards UK equities continue to build, the potential for a meaningful re-rating could be significant.
With hundreds of listed businesses to choose from, the UK small-cap sector offers a fertile universe for active stock-pickers.
However, not all small caps are created equal: the higher prevalence of low-quality, speculative companies means active stock-picking tends to pay off in a way that passive index-tracking does not. The relative scarcity of analyst research, while an obstacle for retail investors, also provides a genuine alpha opportunity for active managers willing to do their own due diligence.
The best-performing UK small-cap fund over five years - across both the Investment Association and the AIC sectors - is Rockwood Strategic (RKW), with a share price total return of almost 130% over this period.
Manager Richard Staveley runs a concentrated portfolio, with the top ten holdings accounting for just over 60% of assets, enabling private equity-style engagement with management teams.
The strategy is deliberately value-focused: Richard looks for businesses trading at a significant discount to their underlying value, whether due to operational challenges, management issues or external events that have weighed on sentiment and share price. The target is companies capable of doubling in value over five years, with Richard seeking out a clear catalyst to drive each recovery story.
Which brings us back to Filtronic - a twenty-bagger for Rockwood, having first invested at 12 pence a share (the share price has risen by 85% over the last year and is now trading around 280 pence). Based in County Durham, Filtronic makes specialist hardware components for satellite communications networks, signing a strategic partnership with SpaceX to supply Starlink in 2024, followed by a record £47 million contract last year.
Funding Circle has been another notable success. Rockwood initiated a position in early 2024 at 34 pence per share. Subsequent catalysts, including a share buyback programme, a cost-cutting drive and the disposal of its loss-making US division, have driven the share price to almost 150 pence.
And these are not isolated cases, with Vanquis Banking Group and Capital Limited rising over 90% in Rockwood’s annual results to 31/03/2026.
This concentrated, best ideas strategy means that strong performers like these can drive returns in a way that a hundred-plus holding fund will struggle to replicate.
The AI trade has been spectacular - until it isn't. With priced-for-perfection valuations at eye-watering levels and doubts growing over the AI spending boom that underpins them, investors chasing yesterday's winners may find themselves disappointed.
UK small caps remain cheap, under-researched and largely ignored, which, as any contrarian will tell you, is usually a rather good place to start.
Numbers as at 01/07/2026 unless stated otherwise.
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