UK smaller companies funds Strategic Equity Capital and JPMorgan UK Small Cap Growth & Income made little overall headway in their latest financial years but express confidence that their sector offers “compelling” returns in future.
Strategic Equity Capital (SEC), the £161m UK smaller companies investment company that saw 22% of shares tendered this month, had a “disappointing” year to 30 June with the total underlying return falling 0.1% and shareholders’ total return up just 0.4% to trail the 13.1% rise in the FTSE Small-Cap index excluding investment trusts. It said a challenging first half that included a Budget cut to inheritance tax relief on AIM stocks was succeeded by a sharp second half recovery. Its longer-term track record remains strong with 27.3% and 69.5% increases in net asset value over three and five years compared to 22.0% and 66.1% averages of UK small-cap trusts and with the shares having returned 94.2% since Gresham House fund manager Ken Wotton was appointed in September 2020. The growth fund declared a final dividend of 4.25p per share, up 21.4% on last year, in response to a 21.2% rise to 5.03p per share in revenues. Wotton anticipates an “acceleration” in M&A activity in the year ahead that would likely benefit the fund as his “private equity” stock picking approach was specifically designed to identify potential bid targets. He said SEC offered an attractive discount on “many levels” with UK equities at a substantial discount to global markets at levels last seen in the 1990s, with UK small-cap stocks at a notable discount to large caps, while SEC’s companies were lower valued and had higher return on equity than UK small cap indices. All this while SEC shares stood at a 12% to net asset value.
JPMorgan UK Small Cap Growth & Income (JUGI) had a similar message as it reported a “tricky” year to 31 July in which its 0.6% investment return underperformed the 2.5% gain in the Numis Smaller Companies plus AIM index (excluding investment trusts). Shareholders saw their total return fall 7.6% as the share price discount to net asset value, which had narrowed to 1.1% following last year’s merger with JPMorgan Mid Cap investment trust, had widened again to 9.5%. However, over three and five years fund managers JP Morgan fund managers Georgina Brittain and Katen Patel have outperformed the benchmark with total investment returns of 22.7% and 57.2% over three and five years. The £410m company paid 15.04p in dividends during the financial year and announced its intention to pay 14.52p per share (3.63p per quarter) in the 2026 financial year. The fund managers said they continued to find exciting opportunities in what remained a diverse UK small-cap market of over 1,000 companies. “The level of M&A, and the number of companies initiating share buy backs due to their undervalued equity in our area of the market, confirm the compelling investment case that we see, and it is notable that foreign investors have recognised this and have been allocating capital to the UK stock market.”
RIT Capital Partners (RCP) notched up a 2.4% rise in net asset value in September on the back of China’s stock market rally and gains in all equity markets in response to the cut in US interest rates. Uncorrelated strategies also performed well, supported by the gold rally, while private investments were flat as the £2.5bn global multi-asset fund waited for third quarter valuations on its fund investments. This lifts RCP’s underlying return for the year to 10%. A further £4m of shares were bought back. The 27% share price discount has so far proved resistant to £64m of buybacks this year.
Oakley Capital Investments (OCI) says the Oakley Capital Fund III that is one of its holdings has agreed to sell its stake in atHome, the Luxembourg property and car website operator, to Apax Partners. The transaction is at a “material uplift” to the 30 June valuation and will add 2p to the investment company’s net asset value per share with OCI’s share of the proceeds around £16m.
Edinburgh Worldwide (EWI), the £733m Baillie Gifford global smaller companies investment trust, says Saba Capital has increased its stake from 28% to 29%. The company was one of seven whose board the activist hedge fund unsuccessfully sought to remove at the start of the year. The shares stand 4.6% below net asset value.
European Smaller Companies Trust (ESCT) says European Assets (EAT) chair Stuart Paterson and senior independent director Kate Cornish-Bowden have joined the board following the completion of the trusts’ merger yesterday. ESCT is issuing 131.1m new shares to EAT shareholders to buy its assets ahead of its liquidation.
Octopus Apollo VCT (OAP3), the £486m generalist venture capital trust, intends to raise up to £75m in the 2026 and 2027 tax years with an over-allotment facility of up to £25m if there is sufficient demand. A prospectus will be published shortly. As previously announced, senior independent director Claire Finn has now resigned from the board. She joined in September 2022.
Geiger Counter (GCL), the £75m uranium fund trading on an 11% discount, spent £650,000 on Tuesday buying back 1m shares at 65.46p. Since 7 August when shareholders extended its buyback authority, the company has repurchased just over 4m shares.
