Smaller companies trust, Miton UK MicroCap focus on cash generation

UK smaller companies investment trust, Miton UK MicroCap Trust plc (LON:MINI) fund managers, Gervais Williams and Martin Turner, provide a portfolio update in October.

During October, as the cost of energy continued to rise, global growth slowed, particularly in China where there have been electricity shortages. These headwinds are a challenge to all companies and were reflected in a 1.60% decline in the FTSE AIM All-Share Index. In comparison, the Net Asset Value (NAV) of the Trust declined by 0.52%.

If the unsettled economic and financial challenges remain in place, we believe the Miton UK MicroCap Trust strategy has some major advantages. Its portfolio principally comprises young businesses that typically operate in immature industry sectors, where their prospects are less correlated with the fluctuations of global growth. Hence, when global growth was challenging in the past, the small UK quoted companies (micro-caps) tended to outperform.

The Trust’s portfolio holdings are actively selected with the potential to generate substantial cash surpluses in the short to medium term. Hence, even when stock markets are weak, such as during the recent pandemic, these stocks may still have the necessary capital to succeed. Specifically, being micro-caps, many of them stand on overlooked valuations, so they also have much greater growth potential as well when they prosper.

Overall, if global growth is becoming patchier, and asset valuations are peaking, then the Miton UK MicroCap Trust strategy could have some distinctive tailwinds over the coming years. A good example of the scale of that potential was evident last year during the global recession, when the Trust’s share price and NAV outperformed many others, as its strategy gathered support from a wide range of investors.

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.

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