Miton UK MicroCap Trust plc (LON:MINI) fund managers, Gervais Williams and Martin Turner, provide a portfolio update for January 2022.
In the absence of inflationary pressures (rising cost of living), central banks have had the flexibility to address any periods of economic and stock market weakness with additional financial stimulus over the past decade or two. This pattern has been disrupted by the recent pick up in inflationary pressure. The big question has been whether the recent spike in inflation was something of a one-off due to industry bottlenecks or potentially more persistent. During January many investors recalibrated their inflationary assumptions to define it as a problem that may be with us for some time.
If inflationary pressures turn out to be stubborn then UK interest rates may need to rise progressively over the next year or two. This would mark a major change to the prior trend and could suppress economic growth for quite some time. The advantages of a strategy investing in small UK quoted companies (micro-caps), is that many are relatively young businesses, that are serving industry sectors that are immature. During the pandemic-induced recession in 2020 for example, many businesses in the portfolio continued to prosper despite the global setback.
The unsettled market may have affected the share prices of many of the portfolio holdings. But over time, if they continue to report good ongoing earnings and prospects, then their share prices can appreciate. The nature of quoted micro-caps is that they are often overlooked by professional investors, so there is opportunity for active stock pickers to add to the potential upside.
Although the Net Asset Value of the Miton UK MicroCap Trust may be buffeted by the unsettled stock market conditions during January, we believe the favourable aspects of its strategy will become more prominent over 2022
