By Annabel Brodie-Smith
My wish for the golden days of autumn to continue has mainly come true this month with a mild and sunny start to the season. Last weekend there was a butterfly fluttering away at the village harvest festival and drinks in the 900-year-old church opposite our house.
Just as well it’s mild, as I’m spending lots of time watching Fabian, my youngest son, play rugby for his school and his club, Farringdon. Of course, there’s also the Rugby World Cup which is keeping us entertained and so far so good for Wales!
“It’s not long until our private investor event, The Investment Company Showcase on 20 October. You can attend both online and in person at Novotel, London West Hammersmith from 10am to 4pm.”
It’s not long until our private investor event, The Investment Company Showcase on 20 October. You can attend both online and in person at Novotel, London West, Hammersmith from 10am to 4pm. We have over 40 managers and experts speaking, and I will be moderating the Asian panel – ‘Looking East’ and the UK Smaller Companies panel – ‘How low can you go?’. Please do come and say hello. The full programme and registration details can be found here.
This month we are scrutinising investment trusts which invest in smaller companies. Last week I had a thought-provoking time speaking to three UK Smaller Companies managers. It’s been a very challenging time for these managers, but they were animated about the prospects for smaller companies and were convinced this was an exceptional long-term buying opportunity.
The UK Smaller Companies sector usually bounces back strongly from periods of adversity. In mid-September we passed the fifteenth anniversary of the collapse of Lehman’s which prompted a sell-off and escalated the financial crisis. But those investors brave enough to buy the average UK Smaller companies trust at the end of September 2008 would have a return of 39% three years later and 134% in five years’ time and, if you had held on, you would now have received a return of 316%.
George Ensor from River and Mercantile UK MicroCap said the UK’s smaller companies are far cheaper now than during the financial crisis and you’d have to go back to 1989 to find a similar period of underperformance. Amanda Yeaman from abrdn UK Smaller Companies Growth said alongside the revised GDP growth figures and the approach of peak interest rates, she had recently seen some all-important signs of interest from overseas buyers.
Ken Wotton of Strategic Equity Capital told me that 15% of his portfolio had been subject to successful M&A bids in the past three years. It was clear to him that private equity does not have such a negative view of the UK! Do watch the video (where I ask about the impact of a Labour victory) and read the release to find out more about these managers views.
“Some investors prefer nimble, smaller businesses with the potential for rapid growth in capital values and/or dividends.”
“Elephants don’t gallop” is the old saying which Ian Cowie uses to explain his rationale for investing in smaller companies. This explains “why some investors prefer nimble, smaller businesses with the potential for rapid growth in capital values and/or dividends.” Ian examines the six investment trusts investing in smaller companies in his portfolio and their different outcomes. The most positive is India Capital Growth, powering away with a return of 31% this year and a return of 84% and 433% over five and ten years respectively, but as ever not all the trusts’ returns are positive.
“At long last interest rates took a break in September after fourteen consecutive rises in a row.”
At long last interest rates took a break in September after fourteen consecutive rises. In her article Faith Glasgow examines what comes next for the investment trust sectors that are sensitive to rate rises - namely, UK smaller companies, private equity, technology, growth capital and alternative assets such as infrastructure and renewable energy. This is a must read for brave contrarian investors looking for opportunities. Mick Gilligan of Killik is keen on prospects for biotechnology trusts and suggests International Biotechnology Trust. Whereas William Heathcoat Amory at Kepler Partners favours renewables and picks out Greencoat UK Wind as an interesting choice.
Finally, John Baron, the MP for Basildon and Billericay and a big fan of investment trusts, has explained the benefits of using model portfolios to meet your financial goals. John writes a monthly column for Investors Chronicle (donating his fee to charity), is chair of the Investment Committee at Baron & Grant and founded Equi Ltd which manages the John Baron Portfolios website.
I’d like to wish you all a good month and look forward to seeing some of you at our event, The Investment Company Showcase later this month.
Annabel Brodie-SmithCommunications Director, AIC
