Downing, a UK-based investment management firm, has launched its first investment trust focused on the micro-cap space in the UK.
The new trust, named Downing Strategic Micro-Cap Investment Trust, aims to offer returns of 15% per annum by exploiting market inefficiencies in micro-cap stocks.
The trust will be managed by Judith MacKenzie, who will be supported by fund managers Alyx Wood and James Lynch and investment manager Nicholas Hawthorn.
It will incorporate an approach similar to MacKenzie’s Downing UK Micro-Cap Growth fund.
“Our investment process should enable the Trust to mitigate much of the perceived ‘risk’ in quoted smaller companies while the closed-ended structure ensures that the interests and investment horizons of both investors and the fund manager are closely aligned,” MacKenzie said.
Downing Strategic Micro-Cap Investment trust will hold 12 to 18 individual investments in undervalued businesses and between 3% and 25% in the equity of a company.
“Companies with a market cap of under £150 million – and particularly those under £50 million – lack analyst coverage and institutional attention which drives pricing inefficiency and, therefore, attractive valuations. There is a wider universe of micro-cap companies, therefore, we believe, there is a wider opportunity compared to those companies with larger market capitalisations, as micro-cap companies tend to better value,” MacKenzie added.