- NAV gain of 21.4% compared with 16% loss in FTSE Small Cap index
- Value investing mindset with concentrated portfolio approach
- UK small caps trading at deep discount
Small cap investing hasn’t been easy of late with the FTSE Small Cap (ex investment trusts) index down 15.7% over the year to 31 March 2023.
But small cap investment specialist Rockwood Strategic (RKW) delivered an increase in total NAV (net asset value) of 21.4% to £19.59 per share over this period, making it the best performing smaller companies fund according to data from the AIC (Association of Investment Companies).
One of the biggest contributors to performance was an investment in Crestchic, formerly Northbridge Industrial Services, which generated 4.8 times return on invested capital, equivalent to a gain of £12.4 million.
Crestchic was successfully taken over by mobile power solutions company Aggreko.
Over the three years to March 2023, NAV total return was 116.9% compared with 49.6% for the benchmark, while total shareholder return for the same period was 139.4%.
Shares in Rockwood were unchanged at £20.47 on the results and have gained nearly 50% over the last year.
WHAT DID THE COMPANY SAY?
Chairman Noel Lamb commented: ‘Since the period end the discount to net asset value has been eliminated for the very first time and we have begun to grow the strategy through new share issuance.
‘This differentiated, active strategy is attracting significant attention, generating sector and market leading performance and offering investors a proven approach to delivering returns despite a challenging external environment.’
Rockwood is managed by Richard Staveley at Harwood Capital, who deploys a value investor mindset and a concentrated portfolio approach. The top 10 holdings account for 64.1% of NAV.
Staveley commented: ‘The vast majority of investments remain deeply undervalued providing us with confidence regarding future NAV growth potential.
‘We remain heavily engaged with our investee companies and have initiated a range of new investments during the year which we expect to at least meet our 3–5-year target returns and thus fulfil our objective of compounding wealth for Rockwood's shareholders long-term.’
WHERE IS THE TRUST INVESTED?
The fund’s largest holding at 9.2% of NAV is leading education market supplier RM (RM.), where a botched software update caused operational problems which led to the CEO and chief financial officer being replaced.
Rockwood expects the new CEO to drive value creation through a well-managed divisional disposal once the business is stabilised. The manager believes the shares have a sum of the parts valuation ‘materially’ above the current price.
Global advertising group M&C Saatchi (SAA:AIM) represents 8% of NAV and Staveley believes the shares are ‘grossly’ undervalued. The balance sheet has net cash and the manager believes in the new strategy to grow the business ‘markedly’ and improve margins.
Other top holdings include business information and media company Centaur Media (CAU:AIM), components supplier Flowtech Fluidpower (FLO:AIM) and specialist industrial parts maker Pressure Technologies (PRES:AIM).
The trust has a management charge which is fixed at £120,000 a year until the NAV reaches £60 million. There is a performance fee which pays 10% of returns above a hurdle rate of 6% a year.
