The power of small


Over the decades of glob­al­i­sa­tion, plen­ti­ful growth with low-cost debt came to be re­garded as the norm.

In a world of easy credit and gi­gan­tism, small­ness didn’t get much of a look in.

How­ever, since 2008, ul­tra-low in­ter­est rates have led to a stag­na­tion of global pro­duc­tiv­ity. As this has come through in su­pressed wage growth, elec­toral at­ti­tudes have hard­ened against the pre­vi­ous sta­tus quo.

Miton fund man­agers Ger­vais Wil­liams and Martin Turner be­lieve mar­ket trends are at a multi-decade turn­ing point. In fu­ture, in­vestors will be­come more dis­crim­i­nat­ing in their choices, and pri­ori­tise cap­i­tal al­lo­ca­tion into as­sets gen­er­at­ing pro­duc­tiv­ity im­prove­ment.

The in­vest­ment strat­egy of Miton UK MicroCap Trust plc has been crafted in an­tic­i­pa­tion of these chang­ing mar­ket trends.

Two fea­tures de­fine mi­cro cap com­pa­nies, the small­est of small listed com­pany shares - their ac­cess to cap­i­tal and man­age­ment agility. When mar­kets are unset­tled, these fac­tors tend to en­hance the re­turn of mi­cro caps.

A dif­fer­en­ti­ated Trust

The closed-ended struc­ture of the Trust, where there is a fixed num­ber of shares in is­sue, means the man­agers can take a long-term view. There are over 1,000 com­pa­nies listed on the FTSE Small Cap, FTSE Fledg­ling and FTSE AIM In­dices.

So, the op­por­tu­ni­ties for ac­tive man­agers to select un­der-re­searched com­pa­nies are plen­ti­ful. This helps en­sure in­vestors cap­ture the illiq­uid­ity pre­mium1 that comes with mi­cro cap com­pa­nies.

As man­agers Ger­vais Wil­liams and Martin Turner com­mented: “Like oth­ers, we love spot­ting over­looked com­pa­nies with vi­brancy and ur­gency. The ad­van­tage of mi­cro caps is that there aren’t many oth­ers look­ing to pick these out.”

In con­trast to many ex­ist­ing smaller com­pany funds or in­vest­ment trusts, this Trust is gen­uinely in­vested in mi­cro cap hold­ings.

“With world growth stalling, there’s re­newed in­ter­est in self-help as­sets that can buck the eco­nomic slow­down, and sus­tain on­go­ing growth. We are not just look­ing for stocks that sur­vive the chang­ing agenda. We’re look­ing to back those that can re­ally thrive.”

“Along­side, the re­turns of the Miton UK Mi­cro Cap Trust tend to be less cor­re­lated with main­stream in­dices, be­cause the port­fo­lio in­vests across such a wide range of in­dus­try sec­tors.”

The shares of smaller UK listed com­pa­nies tend to be more dif­fi­cult to buy or sell, and hence their share prices of­ten move more abruptly, although this neg­a­tive can off­set higher long-term re­turns. This ef­fect is known as the illiq­uid­ity premium.

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