The board and manager of Downing Strategic Micro-Cap have decided that, with the continuing negative sentiment towards smaller companies and small investment trusts, it is timely to begin a managed wind-down of the company, with the intention to make the first return to shareholders of at least 20% of capital in early 2024. This will be followed by further returns of capital as liquidity/trade exits permit.
They believe that they will be helped in this by catalysts within the portfolio, saying that over 20% of net assets are now ‘in play’ with agreed bids or strategic reviews that should lead to exits and a return of capital.
The news accompanied the announcement of the trust’s interim results to end August 2023. The NAV at that date was 71.57p per share, down 7.1p over six months.
The chairman notes that “All relevant UK indices (FTSE All-Share, Small-Cap, and AIM) have declined. The S&P 500 has wandered through a small amount of uplift but faltered again. Valuations are relatively high in the leading market of the US but remain depressingly low in the glum markets of the UK. Investors and institutions seem to have lost direction and have retreated from even those equity markets that are cheap. Advisors do not know what to make of interest rates which, although not much different from the long-term historical trend, are now starkly different from recent bull years. The herd is confused. Even bonds have been uncertain and property prices challenged. Uncertainty has led investors to shelter in money markets for returns. The prospects of small caps and value have not featured at all – yet. Compared with a FTSE AIM All-share TR decline of 13% over the period, DSM’s portfolio NAV declined by 8%, leading to a complementary share price decline of 8%. Given that our peer group has also lost market value in the period since DSM’s last year end, it is barely an accolade to say that DSM has done marginally better than ‘middle of the pack’. In truth, even good micro-cap stocks continue to be overlooked by markets, brokers, analysts, commentators, and investors. Trading has been thin. The story seems to be similar for much of the FTSE All-Share TR. Global drift, uncertainty, advisory fog and bouts of political dysfunction hardly help.”
The shift to a managed wind down needs shareholder approval.
[QD comment: I am sad to see that this fund will disappear but for many years now investors have shunned UK small caps and particularly those at the micro cap end of the market. The government is making noises about trying to change that but we’ll have to wait to see what is contained within the Chancellor’s Autumn statement.]
DSM : Downing Strategic will commence managed wind down