Miton UK MicroCap Trust – (“MINI”) – The Case for Investment

This update should not be taken as advice. If you are unsure about any of the content please contact your financial adviser. Please remember that the value of stock market investments will fluctuate and investors may not get back the original amount invested. To assist, where appropriate, a glossary explaining some of the terms used has been provided at the end of this update.

Key points:

  • Focus on providing capital growth over the long term, at least 5 years
  • Managed by highly experienced UK equity team since 2015
  • Invests in the smallest companies listed on the UK stock exchange
  • A diversified portfolio of 139 holdings (as at 31 August 2022), diversified by industry sector

 

Why we believe small is better

The primary focus of MINI is to provide shareholders with capital growth over the long term by investing primarily in the smallest companies at the time of investment (by market capitalisation), referred to as ‘micro-caps’ that are quoted (those listed on the stock exchange) in the UK.

Our approach when selecting the types of companies in which to invest to achieve this objective, has been to look to capitalise on the anticipated reversal of many of the dominant economic trends of the past three decades, in particular globalisation.

In recent years, institutional interest in quoted UK microcaps has waned in favour of other assets such as US technology, megacap (the largest companies measured by market capitalisation), growth companies. The uncertainties of Brexit also suppressed investor enthusiasm for UK companies, and as a result, many microcap companies are still looking undervalued, in our view. We expect the focus on ‘bigness’ during globalisation will evolve to include a renewed interest in smallness and we have positioned the trust to take advantage of this.

Why we like the unloved

When we are looking at companies to add to the trust, our focus is on those quoted micro-cap companies that we believe have been generally overlooked by the market. When these types of company succeed, their share prices can rise by greater percentages than larger companies. We look to avoid those companies that appear to be overvalued and also avoid those with high levels of gearing, which is the level of a company’s debt in relation to its capital. Instead, we prefer companies that we believe have clear growth potential, the ability to generate plentiful cash, and whose share prices have the potential to rise substantially if things go well.

Avoiding the fashionable

The primary drivers of MINI’s returns are specific companies within the portfolio. When selecting companies to add to the portfolio, we want to identify those with robust balance sheets, and that we believe are positioned to weather any stock market setbacks.

We have not invested in some of the most fashionable companies whose share prices may have risen substantially. This has helped the portfolio to avoid instances where a microcap company runs out of cash, leading them to issue new shares at lower levels and diluting shareholders (decreasing the value of their existing ownership percentage).

Another key performance driver is our investment in companies whose share price movements behave differently to the rest of the portfolio, such as gold mining companies, the prices of which often rise when stock markets are falling, cushioning the portfolio in adverse conditions.

Looking ahead

We believe the trust is well positioned for the future as its portfolio is largely composed of companies which can generate profits, have robust balance sheets and that also have evidence of delivering outstanding customer service which in our view puts such companies in a really good position to generate better profit margins than other companies who are less aware of the needs of front-line staff. There is no guarantee that the investment objective of the trust will be achieved.

We consider Environmental, Social and Governance (‘ESG’) issues as they are helpful in seeking to reduce risk in our investment portfolios. In particular, when we meet UK quoted smaller companies we believe that addressing the climate change agenda ahead of the market can lead to commercial advantage in a similar way to prioritising premium service and socially useful outcomes often helps retain staff in a competitive market. We believe that company management that focus on both profitable financial results as well as reducing commercial risks via ESG initiatives are better investments and therefore lead to better financial outcomes for investors in the trust.

In short

So, whilst many of the companies in which we invest are relatively tiny in comparison to the largest quoted companies, these can be significant businesses in their market place and therefore have the potential to generate significant surplus cash should they succeed and attractive returns for the trust.

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Risks

All types of investment carry a degree of risk.  It is possible you could lose some, or all, of the money you invest. The level of risk varies depending on the type of investment.

Typically, you are less likely to lose money over the long term from an investment that is considered low risk, although potential returns may also be lower. Investments considered higher risk typically offer greater opportunities for better long-term returns, though the risk of losing money is also likely to be higher.

When you invest, it is important that you understand the risk to your money and are comfortable with that level of risk. If you are unsure, we would recommend that you consult a financial adviser.

The value of your investment might not keep up with any rise in the cost of living.

You could lose money if financial markets fall.

The performance of the trust will be affected by investment decisions made by the fund manager.

Investment in smaller companies is typically higher risk than investment in larger companies. Shares in smaller companies can experience greater levels of volatility.

Future forecasts are not reliable indicators of future returns.

Glossary

Assets

Different groups of investments such as company shares, bonds, commodities or property.

Bonds (or fixed income)

Types of investments that allow investors to loan money to governments and companies, usually in return for a regular fixed level of interest until the bond’s maturity date, plus the return of the original value of the bond at the maturity date. The price of bonds will vary and the investment terms of bonds will also vary.

Equities

Another name for shares (or stock) in a company.

Growth stocks/companies

Typically those companies whose profits are less sensitive to economic activity and can grow profits and generate cash at a rate above the average growth for companies listed on the stock market and through different economic conditions; they usually operate in faster growing industries such as technology or healthcare.

Market capitalisation

The total value of the shares of a company, often referred to as ‘market cap’. For example, large companies are referred to as ‘large cap’, medium sized companies as ‘mid-cap’ and small companies a as ‘small cap’.

Quantitative easing (QE)

A monetary policy whereby a central bank purchases predetermined amounts of government bonds or other financial assets in order to inject money into the economy to expand economic activity. It has the opposite effect to quantitative tightening.

IMPORTANT INFORMATION:

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the content contained within/suitability of the funds or trusts mentioned, please speak to a financial adviser.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or fund does not constitute a recommendation to buy or sell the stock or fund. Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

All data is sourced to Premier Miton unless otherwise stated.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

A free, English language copy of the trust’s full Prospectus, the Key Information Document and Pre-investment Disclosure Document are available on the Premier Miton website, or you can request copies by calling us on 01483 306090.

Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227. Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

007687/061022

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This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

Website terms of use: Please ensure you have read and accept the full 'website terms of use' before continuing.

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Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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