Miton UK MicroCap Trust plc (LON:MINI) fund managers, Gervais Williams and Martin Turner, provide their latest portfolio update.
To the casual observer, the returns of many stock markets may have been unremarkable recently. Yet under the surface, there may be something of a fundamental shift going on regarding the longer-term trends.
In the summer, investors anticipated that inflationary pressures were moderating, and the share prices of companies with rapid growth prospects tended to outperform. Latterly, worries about persistent energy and employee shortages have led to a change of heart, which favoured the share prices of UK companies that generate surplus cash.
Furthermore, there has been marked slowing in the Chinese economy recently, which is unsettling given that it has been at the cornerstone of global growth over the last couple of decades. If the current Chinese economic slowdown were to become endemic, then we might anticipate an adverse impact on the longer-term trajectory of global growth.
One of the advantages of the Miton UK MicroCap Trust strategy, is that its portfolio principally includes younger businesses, such as those listed on the FTSE AIM exchange. Younger businesses often operate in immature industry sectors, with prospects that are less correlated with the fluctuations of global growth. Furthermore, we select companies with the potential to generate substantial cash surpluses in the short to medium term. Yet being small companies, many of these also stand on overlooked valuations at the time of purchase, therefore if they succeed, their share prices can sometimes appreciate considerably. All three of these factors could become a lot more relevant if the trajectory of global growth changes.
At this stage, it is still too early to be confident that the trajectory of global growth has fundamentally changed. But if it were to, then we believe the Miton UK MicroCap Trust strategy could deliver attractive returns over the longer term, relative to various international stock markets such as the US, as well as relative to the mainstream UK indices.
Miton UK MicroCap Trust plc (LON:MINI) is a closed-end Investment Trust incorporated in the United Kingdom. The investment objective is to provide Shareholders with capital growth, over the long term. Investing primarily in the smallest companies, measured by their market capitalisation.
It is likely that the majority of the micro cap companies held in the Company’s portfolio will be quoted on the FTSE AIM All-Share Index (an index consisting of all companies listed on the Alternative Investment Market which meet the FTSE’s eligibility criteria) and will typically have a market capitalisation of less than £150 million at the time of investment.