Fund Research

Miton UK Micro Cap

Last update 11 September 2018

Miton UK Micro Cap is a £102m investment trust which seeks to offer investors a domestically focused and largely differentiated trust, through investing in the smallest companies in the UK.

The managers believe that, a result of the financial crisis, poor productivity and stagnant wage growth has created an environment which is ripe for political upheaval.

Managers Gervais Williams and Martin Turner think a backlash against globalisation has been a key factor behind the political and economic changes that we have only just started to see happening. Added to this, the bull market we have enjoyed over the past decade caused by the response to the financial crisis, has caused a massive misallocation of capital due to the prolonged period of low interest rates and easily available credit. In their view, the clear beneficiaries of the anticipated changes to political and economic environments, will be better conditions for their small, domestically focused companies.

The portfolio is well diversified, with stock specific risk also spread via a wide range of relatively small holdings, currently 119. Of this, the top 10 holdings equate to 28% of the portfolio.

Since inception the company has performed well, returning close to 45% for investors. Although c.4% ahead of the Numis SC 1000 (Inc. Investment Companies) sector, the trust has trailed the benchmark FTSE AIM All Share by c.8%. It is worth bearing in mind that much of the outperformance of the benchmark has been dominated by a few names. Over the same time, the share price rating has varied greatly. For the first year after launch, the company traded on a significant premium. However, the referendum in 2016 saw the trust go from a c.10% premium to a c.8% discount in a matter of months. The trust’s discount has remained largely the same over the past 6 months and has traded on an average discount of -4.33% over the past year.

The managers often refer to the trust as an 'early stage income fund', as many of the holdings are early stage companies which they hope will increase their levels of cashflow, and in turn dividends, as they improve their productivity. However, at this moment in time the current yield is just 0.5%, relative to the sector AIC Smaller Companies average of 2.0%.

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