First set of results for Downing Strategic Micro-Cap – Following its launch at IPO in May 2017, Downing Strategic Micro-Cap Investment Trust (DSM) has delivered its first annual report to 28 February 2018.
The company aims to take influential positions in a focused portfolio of 12 – 18 UK micro-cap companies.
The company raised £54.5 million (net) at IPO and over the course of the period to 28 February 2018 investments were made in the equity and debt instruments of ten businesses. By 29th March 2018, 66.2% of the money raised has been invested. Excluding turnaround situation, Real Good Food, the underlying operational performance of all portfolio holdings have performed as expected. In keeping with the objective of the company, a number of holdings have taken decisive strategic action to increase their intrinsic value since investment.
The portfolio comprises a diverse spread of businesses which the company believe are at a transformational stage, and capable of delivering exceptional long term shareholder returns. Performance has been held back by a number of the initial investments that are taking time to “bed in”.
The net result for the first ten months has been a decline in the NAV from 98p to 93p. The share price has followed the NAV and is trading almost at par at just under a -0.1% discount
Outlook from Judith MacKenzie, investment manager, Partner and Head of Public Equity, Downing LLP
“We follow a strict value investing mandate, seeking to invest in businesses which are trading, or where we can engineer an entry, at a discount to our determination of intrinsic value.
Our determination of risk revolves around permanent erosion of capital, rather than volatility. Therefore, we attempt to avoid investing in anything highly speculative where intrinsic value cannot be determined through forecastable cash flows. We also look favourably upon strong balance sheets, particularly those with net cash positions or where we can find valuation support through net asset value alone, ideally tangible net assets.
With this in mind, we believe that our portfolio is well positioned on valuation grounds to protect and grow our shareholder’s capital in the long term. We also believe that by leveraging various strategic initiatives, these businesses should be able to deliver compound growth rates that meet or exceed our 15% p.a return target over the long term.
Given the heightened volatility which has typified the market since the beginning of 2018, we believe that our value strategy will perform well as we opportunistically add to our positions in what we believe are already undervalued shares.”
DSM : First set of results for Downing Strategic Micro-Cap