Odyssean Investment Trust (OIT) announced its annual results for the year ended 31 March 2023. NAV per share fell 2.2% while shares fell 1.2% over the 12 month period, comfortably outperforming the benchmark Numis Smaller Companies Index ex IC plus AIM Total Return Index which fell 13.4%. Shares in the company continue to trade at a premium which was around 2.2% at the time of release and net assets of the company increased during the period under review by £23.4m to £181.2m, representing a rise of 14.8% reflecting a steady issuance of shares above the NAV per share.
Commenting on the performance, chairman Jane Tuffnel noted:
“The company’s performance is creditable against the broad peer group and underlying markets during a period of considerable market turmoil. Over a matter of a few months, there has been a 400% increase in the absolute cost of money (i.e. interest rates) and this continues to have ramifications for both asset prices and company earnings. Moreover, as the portfolio manager details, UK equity funds are extremely out of favour, with open ended funds experiencing large redemptions.
“Our management team are navigating these markets well and I am confident we will make money out of them but some short-term volatility has to be endured.”
Regarding the outlook, she continued:
“At the time of this report, we have recently crossed the fifth anniversary since your company’s launch. The NAV per share has increased by more than 60%, during which time the relevant equity markets have made negligible progress.
“Investor sentiment towards UK equities remains very poor, but the level of M&A activity from private equity and corporate buyers of quoted UK companies is extremely strong so far in 2023, indicative of many valuation anomalies. The company has benefitted from this trend, and, absent a material re-rating of markets, is likely to continue to do so.
“Investing in these market conditions can be challenging. The positive and negative attributes of quoted equity markets, particularly in less liquid smaller companies, is that recalibration can be frighteningly quick, with some potential overshoots. However what I observe as chairman of this highly concentrated, specialist portfolio, is that the hands-on active management of our positions creates opportunities in bad days as well as good days. I have taken great comfort in watching your management team closely and although there are bumps in the road, we have a team who know their companies well and can move quickly to take advantage of situations.
“The portfolio manager is also willing and able to engage with their portfolio companies to help bring about positive change, the benefits of which tend to be seen months later and deliver non-market driven returns.
“With the considerable M&A driven exits of portfolio companies over the period, the portfolio manager has been busy re-allocating capital. As a result, portfolio turnover has been higher than expected for the strategy, but it is indicative of the current opportunity set that the portfolio manager has been able to find new investments so quickly.
“It is also notable that the underlying portfolio generates the supermajority of revenues from outside of the UK. Far from being the stereotypical domestic smaller company exposed fund, the company’s portfolio enables shareholders to benefit from international growth opportunities. This feature, the concentration, and the avoidance of various sectors drives the differentiated performance against the indices and the broader peer group.
“The board shares the portfolio manager’s view that notwithstanding short-term volatility and further potential short-term weakness, above trend long-term future returns are likely from this point. The lead indicator is likely to be data showing that the level of outflows from UK equity funds is slowing. Once fund flows stabilise and forced selling stops, it’s likely that UK equities will re-rate, potentially quite sharply for less liquid smaller companies. The market backdrop for the level of absolute returns in the next five years appears more supportive than the first five years.
“We are grateful for the ongoing support shown by shareholders during the period.”
OIT : Odyssean Investment Trust continues to execute