Diverse Income Trust plc (LON:DIVI) fund managers, Gervais Williams and Martin Turner comment on the Trust’s August performance in their latest Investment Insights.
August is often a quiet month for the stock market, and this year was marked by even lower volumes of daily transactions than normal. Even so, company share prices generally appreciated with the FTSE All-Share Index up 2.7%. Smaller company share prices appreciated a little more, with the FTSE SmallCap Index (excluding Investment Companies) up 4.2%. To some degree the valuations on long-dated bonds continue to be elevated and this tended to favour some of the companies forecast to grow rapidly rather more than those who pay an income. Overall, the Net Asset Value of the Trust rose 2.1% over August.
One of the advantages of investing via a multi-cap portfolio, is that the prospects for many of the holdings in the portfolio are overlooked by other investors at the time of purchase. Furthermore, often the management teams of the companies themselves enhance the upside through increased capital expenditure, or by increasing the ability to generate surplus cash via a low-cost acquisition. As the scale of some of these businesses become larger, there are often a wider range of potential professional investors that are willing to consider investing in them, and that can be reflected in an increase in their valuation. All three of these factors can sometimes drive the share price of an individual holding up a by a considerable percentage over a number a years.
A good example has been Strix, a company that manufactures kettle switches. The Trust invested in the company at its Initial Public Offering (IPO) in August 2017 at 100p, and the prospects for the business have improved over the last four years. In August, it was one of the strongest performers in the Trust’s portfolio, and at the end of the month it was at 375p. Furthermore, when Strix was issued, it was expected to pay a generous dividend, and has subsequently grown it. Overall, it has delivered an annualised return of 34.2% since August 2017. We continue to identify new holdings that we believe have similar potential. During late July, the Trust invested in the Lords Trading Group at its IPO at 95p. During August, investor enthusiasm for its prospects led its share price to rise to 123.5p, and like Strix we also expect it to supplement the return with a generous dividend.
The Diverse Income Trust plc (LON:DIVI) invests primarily in quoted or traded UK companies with a wide range of market capitalisations, but a long-term bias toward small and medium sized companies. The Company may also invest in large companies, including FTSE 100 Index constituents, where it is believed that this may increase shareholder value. The Managers adopt a stock specific approach in managing the Company’s portfolio and therefore the amount apportioned to a particular industry sector is of secondary consideration. As a result of this approach, the Company’s portfolio does not track any index.