In­vest­ment trust tip of the year: a bas­ket of small stocks primed for rapid growth

The team be­hind Aug­men­tum Fin­tech has a strong record of seek­ing out busi­nesses that can dis­rupt the fi­nan­cial ser­vices mar­ket

The Daily Telegraph - Business - - Business - Richard Evans Read Questor’s rules of in­vest­ment be­fore you fol­low our tips: tele­graph.co.uk/go/ questor­rules; twit­ter.com/DTquestor

QUESTOR’S in­vest­ment trust pick of the year, which we name to­day, aims to buy as­sets with the po­ten­tial for “ex­po­nen­tial” growth.

Those as­sets are stakes in “dis­rup­tive” start-up com­pa­nies that have found new ways to of­fer fi­nan­cial ser­vices to con­sumers and busi­ness cus­tomers.

Such firms are some­times de­scribed as “fin­tech” com­pa­nies and the in­vest­ment trust that fo­cuses on find­ing the best of them is called Aug­men­tum Fin­tech.

Read­ers may think such a “blue sky” ap­proach is risky, and in­deed it is – but the peo­ple be­hind the trust are hard-headed and ex­pe­ri­enced. Although the fund it­self floated only in March last year, el­e­ments of it, man­aged by the same team that now runs the trust, have ex­isted since 2010, and be­tween that time and

De­cem­ber 2017 re­turns were ex­cel­lent at about 17pc a year. The trust was ef­fec­tively spun out of RIT Cap­i­tal Part­ners, a pop­u­lar listed fund set up to man­age the wealth of part of the Roth­schild fam­ily.

A port­fo­lio of un­listed fin­tech stocks partly owned by RIT be­came the core of the new trust, while the flota­tion raised about £60m of new money, which is now be­ing in­vested in sim­i­lar op­por­tu­ni­ties.

The man­age­ment team, led by Tim Levene and Richard Matthews, has decades of ex­pe­ri­ence in pri­vate eq­uity in­vest­ing and as a re­sult possesses the ex­ten­sive net­works of con­tacts cru­cial to get­ting ac­cess to the right po­ten­tial in­vest­ments.

“We have great con­fi­dence in this team,” said An­thony Leatham, an in­vest­ment trust an­a­lyst at

Peel Hunt, the stock­bro­ker. “A lot de­pends on how plugged in you are to the right net­works and they have ex­cep­tional reach in their field.” It’s not just a ques­tion of ac­cess to op­por­tu­ni­ties, how­ever: it’s vi­tal to be dis­crim­i­nat­ing about which ones you ac­tu­ally in­vest in. The Aug­men­tum team’s record sug­gests that they are just that.

Pri­vate eq­uity in­sid­ers talk about the “look-to-book ra­tio” – the num­ber of op­por­tu­ni­ties you look at rel­a­tive to the num­ber you put money into. Over the in­vest­ment pe­riod of the pre­cur­sor port­fo­lio more than 1,100 leads were whit­tled down to only seven in­vest­ments, said Peel Hunt, which is Aug­men­tum Fin­tech’s bro­ker.

“Given the depth of op­por­tu­ni­ties for fin­tech busi­ness, the team can be se­lec­tive in its in­vest­ments, iso­lat­ing only those that have the great­est po­ten­tial to gen­er­ate mul­ti­ples of in­vested cap­i­tal,” the bro­ker added.

The port­fo­lio cur­rently has hold­ings in sev­eral well known busi­nesses, such as Zopa, the “peer-to-peer” lender, and In­ter­ac­tive In­vestor, the in­vest­ment shop. The man­agers be­lieve in com­mit­ting money once a busi­ness has es­tab­lished it­self, rather than at the very be­gin­ning.

“To­day we see the fin­tech sec­tor reach­ing an im­por­tant in­flec­tion point in terms of growth po­ten­tial,” Peel Hunt con­cluded. “As cus­tomers re-eval­u­ate their re­la­tion­ships with banks and fi­nan­cial ser­vices providers, we see fin­tech’s mar­ket share in­creas­ing ex­po­nen­tially from here. Aug­men­tum is well placed to par­tic­i­pate in this growth.”

The trust cur­rently trades at a dis­count of 5.4pc. A trust that takes a sim­i­lar ap­proach to in­vest­ing in health­care com­pa­nies, Syn­cona, trades at a pre­mium of about 25pc.

Questor says: buy

Ticker: AUGM

Share price at close: 98.4p

Up­date: Te­tragon Fi­nan­cial

We tipped Te­tragon Fi­nan­cial, which has a di­ver­si­fied port­fo­lio of as­sets in­clud­ing stakes in other as­set man­age­ment busi­nesses, in Oc­to­ber 2017 on the ba­sis that the 34pc dis­count at the time was too wide. Un­for­tu­nately the dis­count has widened to 46pc and as a re­sult the share price is about 9pc lower.

The trust re­cently sold a stake in one of its as­set man­age­ment busi­nesses, GreenOak Real Es­tate. Tom Tre­anor, of As­set Value In­vestors, said his firm had in­creased its stake in Te­tragon since our orig­i­nal ar­ti­cle.

He said the in­vest­ment case was un­changed, adding: “The GreenOak deal demon­strates Te­tragon’s con­ser­va­tive val­u­a­tion method­ol­ogy and pro­vides some val­i­da­tion for its strat­egy within the as­set man­age­ment part of its port­fo­lio. We in­tend to hold our stake for the fore­see­able fu­ture.”

Hold.

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