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“Micro-cap” funds investing in the smallest UK-listed companies now look attractive as Britain’s stock market comes in from the cold in anticipation of a cut in interest rates.
Excluding two small funds, one of which is being wound up, there are four London-listed investment companies focusing on undervalued shares at the lower end of the stock market.
Of these, two deserve attention after financial publisher Citywire highlighted the good performance of their fund managers.
Ken Wotton, manager of Strategic Equity Capital at Gresham House, and Richard Staveley, manager of Rockwood Strategic at Harwood Capital, have both gained high “AA” grades in the new Citywire Investment Trust Fund Manager Ratings.
Citywire analyses the three-year returns of investment company managers investing in shares, or equities. Every month it ranks their performance against a relevant stock market benchmark in terms of how much return they make for the risk they take.
Of those whose risk-adjusted returns beat their benchmark index, the top 10pc receive the highest “AAA” rating, the next 20pc an “AA”, the 30pc below that an “A” and the remainder a “+” rating. In all, 51 portfolio managers running a wide range of 33 investment companies have been rated.
The ratings come at a fruitful time for Wotton and Staveley’s approach to running portfolios of 15 to 25 UK stocks under £300m. Both target fundamentally sound businesses trading below what they believe is their true value and whose management are willing to work with them on a five-year recovery plan to double the shares.
Rockwood Strategic, a small but rapidly growing £79m investment company, has jumped 23pc in the past three months helped by a new investment in Funding Circle.
Shares in the loss-making lending platform have more than doubled since Staveley bought them in February and the company responded to his call to cut costs and do something with its cash pile.
A big share buyback and the likely sale of its US operation quickly made Funding Circle Rockwood’s fourth biggest holding at 6.8pc of assets.
Filtronic, a Leeds-based engineer that is now Rockwood’s fifth biggest position at 6.7pc, soared 164pc after winning a new contract with Elon Musk’s SpaceX.
Since April 2022 when Staveley was reunited with the trust, which he previously ran when it was called Gresham House Strategic, its shares have rocketed 82pc to 257.6p.
It got a massive boost that year when Crestchic, a manufacturer of power transformers in which a third of its assets were invested, received a £122m cash bid.
Mergers and acquisitions have continued to benefit the fund with property website OnTheMarket, City Pubs and Finsbury Foods all falling to predators last year.