McKenzie will soon bring to market the Downing Strategic Micro-Cap Investment Trust.
She commented that the holdings won’t be an ‘exact mirror’ of the holdings in her high performing Downing UK MicroCap Growth fund, which has returned 168 per cent in the 9 years for which she has been at the helm, compared to 91 per cent for the average trust in the IA UK Smaller Companies sector in the same time period.
There are around 25-30 holdings in the open-ended fund, while the new investment trust will have closer to 18 holdings. McKenzie commented that a small number of ‘strategic’ position have always been the driver of returns in the open-ended fund, and the investment trust will aim to just have those higher conviction holdings.
The open-ended fund intends to close to new investors when it reaches £30 million, the current level is £27 million.
McKenzie commented that unlike other micro-cap funds, ‘we tend to want to own the shares for a very long time, more like a private equity outlook, as that is where Downing comes from, than a traders outlook.’
She commented that there are over a thousand stocks in the microcap world, and she has whittled those down to 150-200 for which she sees an investment case.
The largest investment in the open ended fund-McKenzie said investors shouldn’t assume it will be in the investment trust-is Redhall Group.
She commented that this is an engineering firm that was once viewed by many in the market as a ‘bit of a basket case’ after having embarked on a spree of debt-fuelled acquisitions.
McKenzie commented that a new management team came in, and ashe invested, negotiating a special price of 5p a share, the shares are now 10p.
Redhall has sold a number of businesses, and she commented that all of those that remain are profitable, and many are in high margin sectors.