Gresham House manager on the UK smaller companies that can win big

INVESTING SHOW: Gresham House’s Ken Wotton on why he gets stuck in to back small companies that can win big

Britain’s big beast FTSE 100 companies are often bemoaned for their lack of excitement but at the opposite end of the UK stockmarket there are plenty of highly innovative companies.

Smaller company investors can benefit from overlooked opportunities in a far less researched market, the headroom for lots of potential growth, and management teams with plenty of skin in the game.

But picking quality small caps requires lots of research and the nous to build a portfolio that can ride out any storms that can severely dent their more volatile share prices.

Some smaller companies funds and trusts deal with this by spreading their risk across 50 to 100 stocks, but that’s not the approach Ken Wotton, of Gresham House, adopts for the Strategic Equity Capital trust he manages.

Instead, it has a tight portfolio of just 17 companies that the fund management team seek to get directly involved with to work together to create a successful business and investment.

It describes this as applying private equity-style techniques to private companies.

On this episode of the Investing Show, Ken Wotton joins Richard Hunter and Simon Lambert to talk through the trust’s approach and why he sees UK smaller companies as having the potential to deliver strong returns in years to come.

But he says that investors must look at companies individually and investigate their prospects rather than applying a broad brush approach.

Ken highlights some of the companies he is backing and why and explains why even though he may be investing in growth companies he looks for profits now rather than the promise of jam tomorrow.

Over the past year, the trust has delivered a 61.4 per cent return as it has profited from the Covid recovery to a greater degree than the AIC Smaller Companies sector average return of 53.2 per cent. However, over three years it trails the 49 per cent sector average with a 42 per cent return. It has ongoing charges of 1.07 per cent and trades at a 13.3 per cent discount to net asset value.

The top ten holdings in Strategic Equity Capital investment trust at the end of September 2021

The trust has outperformed the FTSE Small Cap excluding investment trust index since 2009

The trust has outperformed the FTSE Small Cap excluding investment trust index since 2009