Montanaro UK Smaller Cos Investment Trust PLC on Friday said net asset value decreased in its latest half year, amid a drawn-out period of ‘doom and gloom’ for its asset class.

The London-based investment trust said its NAV at September 30 was 110.5 pence per share, down 3.5% from 114.5p per share at March 31.

Shares in Montanaro UK were nonetheless up 1.5% at 95.39p each in London on Friday morning.

Montanaro UK, which prioritises backing small-quoted companies listed on the London Stock Exchange or traded on AIM, said its NAV total return for the six months that ended on September 30 was negative 3.4%. This underperformed its benchmark composite index, which delivered positive 0.4%.

It was however an improvement on the first half of the previous financial year, for which Montanaro UK delivered a negative 27% return. Its NAV return for the year that ended on March 31 was negative 12%, while the benchmark delivered negative 7.9%.

During the half-year period, Montanaro UK’s market capitalisation fell 4.7% to £167.4 million at September 30 from £175.7 million at March 31.

The firm’s cash balance at September 30 was £5.9 million, down from £11.9 million at the same time one year prior.

‘The optimism of the summer months was dashed towards the end of the half-year period,’ commented Charles Montanaro of Montanaro Asset Management Ltd. ‘Rising bond yields were accompanied by similar style headwinds to those of 2022...It is difficult to overemphasise how challenging the past few years have been for our asset class.’ He added that outflows from that asset class had reached parity with those seen after the Global Financial Crisis.

However, Montanaro continued: ‘Ironically, amidst all the doom and gloom, Smaller Companies - quality ones in particular - have resurfaced on the radar of trade buyers and private equity fund managers. [Mergers & Acquisitions] activity is quietly making a comeback.’

The manager noted Montanaro UK’s portfolio of ‘quality companies with strong balance sheets...and a track record of solid earnings growth,’ and said the trust ‘would not be surprised’ to see more takeover bids for its investees over the coming months.

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