Momentum Investing | UK Mid Cap Investment Trust - But Which One?

20th Dec '23 by Threepeat

17 comments 736 reads

Given the upward trend of the FTSE250 I am thinking of buying a mid cap IT or two to maybe ride the trend. However not knowing much about the sector I would welcome other views on individual ITs and their portfolio compositions and their performance and management strengths and weaknesses. Perhaps I am a little late? Also would an ETF like VMID fit the bill?

I know most of the fund managers have an IT in this space.

Disclosure - I only have 1 stock in this sector which I bought probably 10 years ago when I was more of an income investor - that being SDV

Any thoughts gentlemen? - and Merry Christmas to all our readers

Steve

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Threepeat

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17 comments

af20001

20th Dec '23

The Vanguard Vanguard FTSE 250 UCITS ETF GBP Dis (LON:VMID) ETF would have lower fees than an Investment Trust, think they are something like 0.12%, so very low. That's a tracker, so it holds all securities in the index at their relative weightings.

Another one to consider with low fees is LEGAL & GENERAL UK MID CAP INDEX CLASS C - ACCUMULATION. On the HL platform it's available with fees of 0.08%.

Personally, I think a low cost tracker is a better option than an IT to try and invest in a specific index. I've done very well holding the VMID ETF for quite a while, until the last year or 2!

Threepeat

20th Dec '23

Thanks AF.

Very helpful

bryaz

20th Dec '23

bryaz

20th Dec '23

sorry threepeat pressed something and post disappeared

i have been in SDV since its previous incarnation geared to about 30% so if you are bullish on stock market good one to be in i also hold aa4 as an income play.looking to buy motanaro euro also hold aewu and blackstone loan finance not sure if any of these would be on your watch list

bryaz

KevinS1

21st Dec '23

You could have a look at WisdomTree UK Quality Div Growth UCITS ETF GBP (LON:UGRW) which is a recently launched ETF and when looking at Wisdom Trees website you can see the full list of 99 holdings - there is a good spread between small, medium & large caps and quite a few smaller/mid caps I like the look of.

I appreciate it is a dividend ETF, but you could simply reinvest the dividends. 0.29% plus platform fee.

It only launched in Nov so no decent stats yet for performance but its up 10% since 14 Nov - its launch date.

Appreciate it isn't a mid-cap specifically but I am not convinced by the long-term results of any of the mid-cap IT's eg. Schroder UK Mid Cap Fund (LON:SCP) and you pay a lot for the privilege of some mediocre stock-picking.

simoan

21st Dec '23

You need to check your definition of Mid Cap.s Most of the AIC UK Smaller companies IT’s hold a large percentage of what most investors would consider to be Mid cap rather than Small cap companies.

ken mitchell

21st Dec '23

I agree with Simoan. In case you didn’t see it, I did a detailed post on Investment Trusts that might well suit you on the Small Cap Value Report thread yesterday.

Andy Howe

21st Dec '23

Hi Threepeat,

I'm invested in Schroder UK Mid Cap Fund (LON:SCP), it forms just under 2.5% of my SIPP. Its a true mid cap Investment Trust and only invests in the FTSE 250, if a company moves to the FTSE 100 they sell. Obviously do your own research. The costs are more than an ETF but over the long term (and including the dividends) it has outperformed the ETFs. Here's hoping for a prosperous 2024.

Cheers Andy

jjis

21st Dec '23

Hi Steve, as I'm a gentleman - here are some thoughts for you, but I think there are ladies on here too who may have an opinion as well!

In the Mic Cap Space that you are talking about, in the UK - I'd suggest The Mercantile Investment Trust - MRC which is run by JP Morgan & generally outperforms its benchmark FTSE All-Share (ex FTSE 100, ex Inv Companies & the Schroders fund & it has a fairly low 0.46% charge.

As others have observed many funds labelled Small Cap also invest in Mid Cap space too. Another from the JPM stable is their JPM Small Cap. Fund -JMI which has been run for years by Georgina Brittain & is run on a QVM type basis and has done quite well within that sector. An alternative if you think value is going to be more in vogue going forward would be the Aberforth Smaller Companies Fund - ASL run by a partnership firm who are specialist small cap value fund managers. So you can get value stocks in a value market at a 10% discount with a 3% yield too. While if you wanted more broad exposure you could consider Fidelity Special Values - FSV which is the IT version of the Special Sitations Unit Trust previously run by Anthony Bolton back in the day, although the latest incumbent Alex Wright has still done a reasonable job in recent years.

You did mention that you may no longer be such an income investor so lower yielding alternatives would be North Atlantic Smaller Companies -NAS run by the well connected Christopher Mills (who holds quite a bit of it), although it has quite an eclectic mix and some unlisted stuff too, but comes on a big discount. While in a similar vein Aurora IT - ARR run by Gary Channon has a unique charging structure where they only get paid if they outperform, which they seem to have done this year.

Finally for a more International flavour you could think about Smithson -SSON which was pretty popular at launch & did ok to begin with but has performed less well recently as quality / growth suffered in a rising bond yield environment, which means it is now available on a 12% discount.

Any way hope this helps, enjoy your shopping in the New Year Sale in the UK Stock market whatever you decide to buy or not as the case may be.

Season greetings

Jamie.

Threepeat

21st Dec '23

Thanks Ken. I assume it was Wednesday's SCVR?

ken mitchell

21st Dec '23

Yes it was yesterday’s SCVR. If you’re not regularly looking at Paul Scott and Graham Neary’s brilliant analysis on small companies reporting that day along with some excellent reader comments, you’re missing out on a superb offering here.

Anyway in case there are any others on this thread not seeing posts there, I’ve pasted my post yesterday below:-

“ Ken Mitchell
Joined 2016 620 postsYesterday 12:38 pm

There is a solution if anyone is unlucky or unsuccessful with their smaller company investments. It’s so frustrating (and this happens even when we research them properly) ending up with the poor performers, and worse still if alternatives we dismissed rocket.

The solution is either to go for a couple of UK Smaller Company Investment Trusts or hold at least one of those and some smaller companies like the ones so well analysed here. There’s no point buying several as it’s just duplication and there are so many other Investment Trust sectors to consider that enable us to invest all round the world!

This link takes readers to all the UK Smaller Company Investment Trusts:-

https://www.theaic.co.uk/aic/f...

Then for loads of facts and figures on each individual Trust just click on the red Trust heading.

Key thing then is to check must know info (some not included in the Stockopedia stock pages unfortunately) like:-

1.NAV and the discount t to NAV.

2. Performance over 1, 5 and 10 years. AND compare the performance of that Trust with the average performance over the same periods for all the smaller company Trusts. That figure is the one at the very top. (That overall long term performance doesn’t look that impressive reflects the long term weakness of UK markets including too many small company shares AND the fact that Investment Trusts generally have underperformed with discounts to NAV unusually wide. So the future could be a LOT better with now the time perhaps to cash in).

3. Announcements obviously for RNS updates and often very good research from Kepler and Quoted Data. I’ve pasted a sample from Kepler at the end of this post.

4. PORTFOLIO. It’s a MUST to check this and their top 10 holdings and the percentage the Trust holds in that share.

5. Use Stockopedia for what it is also intended for. I.e the stock pages for each share the Trust holds in their top 10. And then for analysis from the likes of Paul and Graham as well as sometimes (today is not so good so far!) quality reader follow up. If the Trust holds shares we like that’s a plus.

Now for specific examples of possible UK Smaller Company Trusts to go for.

My preference with Investment Trusts generally is the ones with conviction portfolios with a high percentage in their top 10 holdings. Those Trusts (e.g Strategic Equity Capital (LON:SEC) and Rockwood Strategic (LON:RKW) often work closely with AND provide us with detailed info on each share they hold. I use this info to assist with my own share buying as it can reveal quality shares with great prospects that look too cheap.

Trusts with 100 or more holdings and no conviction buys can’t possibly do that.

So now to the Trusts that HAVE got conviction portfolios.

Rockwood Strategic (LON:RKW) 85% in top 10. High quality Trust and hence unfortunately at a small premium to NAV.

Strategic Equity Capital (LON:SEC) 72% in top 10 Rights and Issues Investment Trust (LON:RIII) 68% Athelney Trust (LON:ATY) 65% but note very small market cap around £4 million and poor performance. Odyssean Investment Trust (LON:OIT) 62%.

I like Strategic Equity Capital (LON:SEC)

Note performance. 1 year up 42% 5 years 72% and 10 years 137% against sector average of 12% 27% and 80%.

Check their top 10.

Medica 12.2% XPS Pensions (LON:XPS) 10.8% Tribal (LON:TRB) 8.2% etc.

I don’t hold any of these Trusts at present because I prefer to choose my own smaller company investments, but I DO hold a LOT of Investment Trusts that enable us to invest all round the world and in things like UK commercial property where I hold several of those very big dividend paying Trusts and until recently very bombed out too. Also Vietnam has proved a fabulous investment for so many years and I hold VinaCapital Vietnam Opportunity Fund (LON:VOF) and VietNam Holding (LON:VNH)and both are still well worth checking out.

Finally here is a section from the Kepler research on Rockwood Strategic(LON:RKW) which summarises it very well. Yea, it’s paid for research but it’s often very good and what’s so different between honest admission that research comment is paid for and House Broker comment?

Rockwood Strategic (RKW)

27/11/2023

Results analysis from Kepler Trust Intelligence

Rockwood Strategic (RKW) has released its results for the six month period ending 30/09/2023. The trust saw NAV and share price total returns of -5.5% and -2.5% respectively during the period, compared to equivalent returns of -10.3% in the FTSE AIM All Share Index and 2.9% in the FTSE Small Cap (Ex-ITs) Index.

That six month period captured a difficult period for UK small company shares which follows an exceptional fund track record over longer periods. In the 12 months to 30/09/2023, RKW delivered total returns for shareholders that were close to 30%. Since the period end and as at 22/11/2023, RKW was the top performer in the AIC's UK Small Cap sector over 1, 3, and 5 year periods. Annualised returns for that five year period were in excess of 20% on a share price total return basis.

This strong track record meant that RKW traded at a premium for much of the period, enabling the board to issue new equity to investors, expanding the shareholder base by 5.7%. We note that this is at a time when UK small caps and the wider investment trust sector have been massively out of favour, with average discounts for closed-ended funds at levels last seen during the financial crisis.

RKW Chairman Noel Lamb said: "The first half of our financial year has been a challenging one for UK small company stock market investors, with sustained outflows from the asset class amidst negative sentiment as interest rates continued to rise against a subdued economic backdrop. For those with sensible time horizons these are typically the conditions for positive future medium-term returns, not least due to the heavily depressed valuations of small company shares relative to history. Private Equity and Trade Buyers are clearly recognising the opportunities created by this environment with the drumbeat of takeovers within Rockwood's portfolio continuing throughout 2023."

Kepler View

Rockwood Strategic (RKW) takes a unique approach to the UK small cap sector, with manager Richard Staveley investing at the smallest end of the London Stock Exchange. He looks for companies that are undervalued and which have the potential to deliver a 15% IRR over a three to five year time frame. This process is helped by the fact that few other fund managers can invest in these companies, mainly due to size and liquidity constraints, and that they typically have little to no research coverage. RKW also takes an active approach with the firms it invests in, meaning members of the RKW team regularly taking up board positions with portfolio companies and push for change where needed. In the period Nick Mills from the investment team joined Trifast as a NED.

Three takeover bids in the RKW portfolio since the end of September are also a validation of the trust's investment process. These were all announced at substantial premiums to prior day closing prices, with Smoove acquired at a 69% premium, Onthemarket a 56% premium, and The Pub Group a 46% premium. We note that the prospective uplift for RKW was superior to each of these, given the entry point at which the managers invested.

RKW is also arguably well-positioned to continue its impressive track record moving forwards. The increasing level of M&A activity we are seeing in the portfolio and wider UK stock market is a sign that trade buyers and private equity firms clearly see the value these companies offer, even if other investors do not. At the same time, we think Richard's focus on valuations, cash flows, and strong balance sheets mean the RKW strategy can succeed, regardless of whether we are in a period in which rates have peaked or where they remain 'higher for longer'. Recent news that Downing Strategic Microcap (DSM) has plans to wind up means the trust is now one of the only closed-ended funds offering investors access to the UK's smallest companies.

67 2 Replies Reply.

jonno

21st Dec '23

Hi Steve

Just reiterating what others have said in that you need to do a little homework, because some Trust titles can be a little misleading. I have been recently buying Jpmorgan UK Smaller Companies Investment Trust (LON:JMI) that has been managed by Georgina Brittain and Katen Patel for many years. The medium to long term record is good, although like most of its peer group it has been out favour for the last 2 years.

If you look at the holdings you will find that it is much more a mid cap than a small cap trust. It currently stands at around a 12% discount to NAV and yields 2.7% or thereabouts. My investment case is based on:

The general under valuation of UK small and mid caps, which should start to unwind given the recent positive news on inflation and resulting outlook for interest rates, and
The recent announcement that JPMorgan Mid Cap Investment Trust (LON:JMF) is to merge with Jpmorgan UK Smaller Companies Investment Trust (LON:JMI). Both trusts are managed by Georgina Brittain and Katen Patel and have several holdings in common. The merger is scheduled to complete early in the New Year.

The following extract from the announcement by Jpmorgan UK Smaller Companies Investment Trust (LON:JMI) released on 14th November summarises the main changes resulting from the merger.

"As part of the Transaction, the Board has also agreed the following changes:

- an enhanced dividend policy targeting a 4 per cent. yield on NAV per annum, calculated on the basis of 4 per cent. of NAV as at the end of the preceding financial year, payable in equal quarterly instalments;

- lower management fees: to be 0.65 per cent. p.a. on JMI's net assets up to £200 million and 0.55 per cent. p.a. on net assets above £200 million (currently 0.65 per cent. p.a. on JMI's net assets up to £300 million and 0.55 per cent. p.a. on net assets above £300 million);

- Significant cost contribution from JPMorgan by way of fee waiver;

- the enlarged JMI will be renamed JPMorgan UK Small Cap Growth & Income plc, with JUGI as the new ticker; and

- three directors from JMF will join the Board. It is intended that one of the former JMF directors will step down at, or prior to, the 2024 AGM."

The proposed dividend policy will mirror that of Jpmorgan Global Growth & Income (LON:JGGI) . One of the most successful trusts of recent times that trades close to par and often at a small premium. Clearly its investment universe is different from that of the new trust referred to above, but nevertheless the revised dividend policy and reduced management fees are positive in my view.

Good luck

Threepeat

21st Dec '23

Thank you Ken, much appreciated.

As it happens I do read Paul SXVR every day but sometimes other things get in the way.

Thanks for reposting

steve

Threepeat

22nd Dec '23

Thanks Andy

Threepeat

22nd Dec '23

Thanks Jonno, I hold Jpmorgan Global Growth & Income (LON:JGGI) so am aware of their performance and am impressed by JPM generally

Charles Mitchell

22nd Dec '23

Agree with Ken-I mainly hold IT for overseas and Private equity exposure. Not many UK funds outperform the market -a few exceptions.

Charles Mitchell

22nd Dec '23

If you use AJ Bell or subscribe to SHARES (free to AJ Bell customers, there is a free download in SHARES for the The Investment Trust Handbook. PDF but cheaper than the £20 for a hardback. Articles it in, data etc.

UK mid cap Investment trust - but which one?

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Threepeat

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