The company seeks to provide investors with long-term capital growth through a concentrated portfolio of UK listed companies, typically with a market capitalisation below £150 million. The company intends to take influential positions in businesses believed to be undervalued and that could benefit from strategic and operational initiatives to drive performance and unlock shareholder value.
Judith MacKenzie discusses the Downing Strategic Micro-Cap Investment Trust
Your capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in smaller companies will normally involve greater risk or volatility than investments in larger, more established companies. Please read full details of the risks here.
What do I need to know before investing?
Where and how is my money invested?
We invest in companies with a market capitalisation of below £150 million, otherwise known as 'micro-cap' companies. These companies have less analyst coverage compared to blue chip companies - on average, there are less than two analysts with published market forecasts per company in the UK micro-cap space.
We look to invest in the companies with a sustainable competitive advantage and a strong management team - at the right price.
We have a rigorous bottom-up private equity approach to investing in stocks. We do our own research and extensive due diligence (which can take up to 18 months) to really get to know a company.
Within the £150 million market cap spectrum, there are a vast number of quality investment opportunities, with around 50% of the 1,250 companies listed on the London Stock Exchange in the micro-cap space. These companies are available at lower relative valuations and can offer greater potential earnings growth. We are also attracted by the opportunity for these companies to deliver long term performance - historically, smaller companies have significantly outperformed their larger cap counterparts over the long term (source: NSCI Annual Review 2017).
Once we invest in a company, we are able to use our strategic holding (usually a 3%-25% stake) to actively influence the company. For example, we can help to restructure their board, refinance their debt or buy out an old stakeholder. These strategic and operational initiatives can help companies realise value and over the long-term create greater returns for investors.
What's the investment process?
Our typical investment process is laid out below:
- Screening 1,250+ companies for investment opportunities.
- Undertake initial due diligence on a select amount of companies.
- Produce a headline investment paper.
- Conduct fundamental analysis.
- Perform financial modelling.
- Determine valuation analysis.
- Produce full investment paper.
- Invest in companies.
- Daily monitoring of 12-18 companies.
- Deploy strategic mechanisms to unlock shareholder value. E.g. provide capital to restructure debt.
What are the risks?
This company is not suitable for everyone, so we recommend seeking financial advice. Downing is not able to advise on your suitability for investment in the company.
- Past performance should not be used as a guide to future performance.
- The value of shares can go down as well as up, and there is no guarantee that you will get back the amount you originally invested.
- Investing in smaller companies is considered to have higher risks than many other investments.
- Investee companies may be significantly more volatile and be materially less liquid than many other investments, especially in comparison to larger securities.
Please note this is only a brief overview of the risks involved with investing in the Downing Strategic Micro-Cap Investment Trust plc. Please read full details of all the risks here before investing.
What are the charges?
Annual management charge:
1% on market cap.
The ongoing charges for the year ending 29 February 2020 were 1.83%.
These charges represent the company’s management fee and all other operating expenses excluding any finance costs, expressed as a percentage of the average daily net assets during the year.
Who's the team behind the company?
Board of directors
Hugh Aldous - Non-Executive Chairman
Hugh is also chairman of the board of a Guernsey investment company and a director of Draper Esprit VCT. Up to May 2020 he was for 15 years a director, and chaired corporate governance, of a US (NASDAQ) listed corporation and up to July 2018 he was a director, and audit committee chairman, of a UK listed fund management company. Prior to that he held directorships, sometimes as chairman, or executive chairman, in a number of companies both listed and private equity. His career includes 35 years of directorships across different sectors and ranging from nationalised industries to private equity. He spent 32 years as a partner, 10 years as managing partner and latterly head of Financial Services, at Robson Rhodes (now Grant Thornton). He combined that with being a DTI Companies Act Inspector over a span of 16 years and he was a member of the UK Monopolies & Mergers and Competition Commissions.
Linda Bell - Non-Executive Director
Linda Bell has extensive management experience working in both public and private equity markets. She is the CEO of Mirico Ltd, a company commercialising laser spectroscopy into industrial applications, former CEO of PhosphonicS Ltd (acquired by Carbosynth Holdings Ltd in January 2017) and a Director of Tomra Systems ASA, a Norwegian supplier of recycling and sorting equipment listed in Norway. She is an Oxford graduate in Natural Sciences (Chemistry) and a DPhil in Inorganic Chemistry with an earlier career at ICI, Servomex and DS Smith.
William Dawkins - Non-Executive Director
Will is Head of UK Board & CEO Practice at Spencer Stuart, a global executive search and leadership consulting firm, prior to which he spent 23 years in a variety of posts for The Financial Times, including foreign correspondent with postings in Brussels, Paris and Tokyo, deputy managing editor, foreign editor and later publishing editor. He is a Cambridge graduate with a master's degree in English literature from Trinity College and attended the Advanced Management Programme at INSEAD. Will also chairs and is a Trustee and Director of the Evelyn Trust, a medical research grant giving charity based in Cambridge, and is a Governor and Director of The Perse School, Cambridge.
Robert Legget - Non-Executive Director
Robert has extensive industry experience, having co-founded Progressive Value Management Limited (PVML) in 2000. PVML specialises in creating value and liquidity for institutional investors out of holdings in underperforming companies. He remains as Chairman of PVML and is also Senior Independent Director of Sureserve Group plc. Robert was formerly a director of Quayle Munro Holdings plc and BMO Private Equity Trust PLC (formerly F&C Private Equity Trust plc). He is a member of the Institute of Chartered Accountants of Scotland and is well respected for his extensive experience in creating value for shareholders.
Judith MacKenzie - Partner
Judith joined Downing in October 2009. Previously she was a partner at Acuity Capital, a buy-out from Electra Private Equity, where she managed small company assets with an activist strategy. Prior to this, Judith spent nine years with Aberdeen Asset Management Growth Capital as Co-Fund Manager of five Aberdeen VCTs, where she focused on technology and media investments in both the public and private arenas. Judith has held a number of public and private directorships. She founded Downing Public Equity (now Downing Fund Managers) and is 3-Crown rated by FE Trustnet*.
* FE 3-Crown rated as at 30/09/2017.
Nick Hawthorn - Fund Manager
Nick joined Downing in September 2015 from BP Investment Management, where he worked in the private equity team. Prior to this, he worked for Aberdeen Asset Management in group finance. Nick is a CFA level III candidate and holds a MSc. in Finance and Investment from Durham University and a MA in Accounting and Economics from the University of Aberdeen. He also holds the Investment Management Certificate.
Cheryl Vickers - Investment Operations Director
Cheryl joined Downing in 2010 from Rathbones where she gained over 12 years’ experience working on VCT, EIS and IHT portfolio services. Cheryl provides portfolio support and oversight to the Downing Fund Managers funds. Cheryl is a graduate of Keele University and is a Chartered FCSI.
What happens once I've invested?
The company’s annual financial statements will be prepared to 28 February in each year and the company’s annual financial statements will typically be sent to shareholders within four months of its financial year end.
The company also publishes an unaudited interim report covering the six months to 31 August each year, typically within two months of that date.