Strategic Equity Capital outperforms in difficult year – Strategic Equity Capital has announced results for the year ended 30 June 2020. Over the period, the NAV total return was -9.1%, reflecting the impact of COVID-19 on the portfolio. This was quite a bit better than the return on the FTSE Small cap ex Investment Trusts, which returned -12.3%. The portfolio has strong positions in healthcare stocks, which proved to be beneficial.
The discount widened leaving shareholders with a return of -13.8%. A dividend of 1.25p is proposed, down from 1.5p last year. Part of this will be paid from revenue reserves as revenue earnings fell to 0.38p from 2.11p for the prior year. The board was keen to protect investors from the worst of the fall in dividend income that has happened across the market. Even after this payment, Strategic Equity Capital will still have 1.65p per share of revenue reserves.
As announced yesterday, Ken Wotton has become lead manager on the portfolio and the nature of the relationship between Gresham House and Aberdeen Standard Investments has changed from one of an intended joint venture to a marketing agreement.
Evolution of strategy
Since the trust moved to Gresham House, the manager has been reviewing the approach to running the fund. The approach will evolve to focus on slightly smaller companies, where they can exert more influence. they can draw on a much deeper, experienced and well-resourced team.
Drivers of performance
The managers note that there have been losers and winners within the portfolio since the COVID outbreak. Holdings such as Wilmington, Hostelworld and Tribal saw disruption given shutdowns and the consequent impact on face to face events, travel and education attendance. On the positive side, and following strong historical performance, the share price of Ergomed increased a further 85% following strong trading. Huntsworth, a new investment in the period, was subsequently acquired at a premium by a private-equity buyer. There was also strong performance from Alliance Pharma and Strix, two defensive businesses with undervalued cash flows.
Five stocks were sold in the year – Eckoh, Oxford Metrics, EMIS, Dialight and Huntsworth – of these, all made considerable positive contributions to returns with the exception of Dialight. Huntsworth was lost to a takeover bid.
The report goes into each of the 10 largest holdings in the portfolio in some detail [one of the things we really like about the trust is how open they are about the successes and failures within the portfolio] and rather than reproducing that here, we suggest that you read the annual report which should be on Strategic Equity Capital’s company page soon.
SEC : Strategic Equity Capital outperforms in difficult year