MoneyWeek finds two UK small-cap investment trusts that have growth potential, while The Telegraph believes Patria Private Equity Trust is worth considering for your portfolio.

By Frank Buhagiar
20 Aug, 2024

MoneyWeek: Two Small Cap Investment Trusts With Growth Potential
What to do when you find two funds from the same sector that both fit the bill – which one do you go for? It’s a problem faced by MoneyWeek after running the rule over Rockwood Strategic (RKW) and Odyssean (OIT), two UK small-cap investment trusts managed by Harwood Capital. Before revealing which one gets the nod, MoneyWeek first sets the scene, highlighting how UK small caps have a strong track record of outperformance – since 1955, the Numis Smaller Companies index has returned a compound +14.1% per annum compared to the FTSE All-Share’s +11%.
The article then goes on to describe what it looks for in a small-cap fund: “A small-cap manager needs to find companies with exceptional prospects to overcome political and fiscal headwinds, to take an active role in shaping the company’s management and strategy, and to guide the company towards a sale at a premium.” Cue £90million RKW and £230million OIT. Being stablemates, both funds have a fair bit in common. They have concentrated portfolios: OIT holds 20 companies; RKWbetween 25 and 30. One difference though, the type of companies they invest in: RKW typically invests in recovery plays found in the smaller end of the market (sub-£200 million market caps); OIT focuses on larger higher-quality growth stocks.
Both funds trade at a premium to NAV too, enabling them to issue new shares. That’s partly down to having strong long-term track records: over five years, OIT has returned +66% compared to the Numis index’s +26%; RKW +129%. MoneyWeek believes the two trusts’ outperformance is testament not only to the quality of the companies they invest in, but also the approach adopted by Harwood who “unlike most managers, takes an active role in guiding them in the right strategic direction, using considerable in-house private equity experience.” A lot in common then, but which of the two to buy? Over to MoneyWeek “The toughest call is to decide which one to buy. Perhaps both?”
Questor: This Index-Busting Trust Proves High Fees Can Be Justified
Sometimes it pays to, well, pay up. That’s the message of the above Telegraph Questor Column on Patria Private Equity Trust (PPET), formerly abrdn Private Equity Opportunities. Firstly, like other private equity funds, PPET provides investors with exposure to companies and sectors that are otherwise difficult to access. Secondly, PPET’s long-term performance record is well ahead of almost all global equity investment trusts, let alone the market: over 10 years, PPET has returned +279% compared to the MSCI All Countries World’s +204% and the FTSE All-Share’s +83%. Go longer and the numbers are even more impressive: over 20 years, the fund has returned +908%, not far off double the MSCI index’s +586%.
These returns have not been generated by just buying low and selling high. Rather PPET helps the managers of the companies in which it invests in to build their businesses. In all, the fund has a diversified portfolio of around 700 companies. Exposure to these businesses is largely gained via funds managed by specialists, although the portfolio does hold 30 direct investments. Despite the strong performance, like other private equity funds, PPET trades at a steep discount to the value of its investments, a nod to investor doubts over valuations assigned to underlying assets across the sector. But Questor believes “That is manifestly wrong, as most realisations of investments are struck at a sizable premium” – over the six months to 31 March 2024, PPET achieved a +27.3% average uplift on exit.
As for those high fees, Questor does not dispute these, “However, the bulk of these fees is determined by the success of the investment. All of the return figures quoted above are net of fees. The reality is that the underlying managers are paid on initial commitments and realised profits.” And then there’s the fund’s dividends. PPETis on track to increase its payout by 5% this year which would be the 10th successive year of dividend growth. As the article concludes “With a decent yield, a big discount that could close and a great track record, Questor believes that Patria Private Equity Trust is worth considering for your portfolio.”
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