There was plenty of activity in the small cap space to keep us busy during the month of May.

It has been a tricky year for investors in small and mid-cap businesses, with the FTSE Small Cap Index down 10.4% to the end of May, FTSE 250 -13.0% and FTSE AIM -19.6%. 

Now is not a time to bury our heads in the sand and to write-off investing in smaller businesses and, as the market seems to have done, pile into old-world oil & gas, mining and tobacco stocks. The fundamental attraction of investing in high quality and growing smaller businesses and taking a patient, long-term view has not changed. History tells us that such businesses stand the test of time, but that the market can and will be particularly volatile the further down the market cap spectrum that one looks. Investors that hope to benefit for the higher potential returns on offer here must be armed with the resolve to see through stormy periods, such as we have now, and to trust in the investment process. This is what we are doing now, continually returning to look at the business fundamentals of our portfolio companies and not letting the external noise distract us.

We have been stating all year that we see valuations as being attractive across our small cap universe and have been adding to positions across the Fund. Ideagen, the software business specialising in highly regulated sectors, is one of these positions that we had been adding to and it turns out that we were not alone in thinking that shares were undervalued – at the beginning of May the private equity business Hg Capital announced a takeover offer for Ideagen valuing the business at £1.05 billion. Hg have offered a significant premium to the pre-offer share price, reflecting our conviction that this is a strong business that deserves a high multiple. After the offer, we began to reduce our position in Ideagen, crystalising a return of just under 100% since investment during 2020.

Ideagen may be soon to leave the listed market, but there are plenty more excellent businesses that remain listed in London where we see shares trading on a discount to their intrinsic value (a wonderfully vague market term). During May we added to our holdings in self-storage giant Big Yellow, UK merchant bank Close Brothers, premium tonic maker Fevertree Drinks, medical services provider Ergomed, outsourced video game developer Keywords and the pub company Young’s. The diversity of these businesses reflects how widespread the market selloff has been and, conversely, how many opportunities the market is now giving to enterprising investors. We will continue to build our investments in these quality businesses and are confident that this will prove to have been a fruitful time to be putting money to work in volatile markets.


The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.

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