Fund Focus: the minnow investment trusts to back

Yet another investment trust has announced plans for a “strategic review” in the last week - and this one feels like it has been a long time coming. 

The BlackRock Income and Growth Ord (LSE:BRIG) board cited the trust’s “ongoing challenges with size, liquidity, and operating costs in the context of the evolving investment trust industry” as reasons for kicking off a review, and it has certainly looked under pressure. 

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The trust has performed well in the last year but has generally lagged the competition in recent years.  

Perhaps more importantly it’s tiny, with a market capitalisation of around £43 million. 

In a context where some analysts view a trust with less than £300 million in size as subscale, the fund has looked far too small for a long time. 

Which smaller funds are worth it? 

We’ll have to wait and see what happens here. The trust’s board has invited “proposals for the future strategy of the company”, and it’s interesting that the directors are open to the idea of abandoning its current focus on UK equities. 

Putting that aside, it’s also worth reflecting on the issue of size in the investment trust sector – and when you might still back a minnow. 

If I go very small and look at those trusts with a market cap lower than £100 million, there are plenty of names that seem not long for this world.  

Shareholders in Schroder European Real Estate Inv Trust (LSE:SERE) (£78 million) recently approved proposals for a wind-down of the trust, for one. But a handful of smaller names do have some appeal. 

The table sets out a handful of names that arguably have appeal despite their limited scale. 

This doesn’t mean they aren’t subject to the pressures that come with being smaller, but they could still have some promise. 

Let’s start with some funds that invest in smaller companies and might benefit from being smaller themselves, so as to avoid liquidity concerns. 

First from the same sector as BlackRock Income and Growth, Chelverton UK Dividend Trust Ord (LSE:SDV) has a market cap of around £32 million. 

The fund invests in small and mid-cap shares in the UK, and has duly struggled on the performance front. Shareholders have lost around 12% over a five-year stretch, making it easily the worst performer in its sector over that period. 

This is admittedly not the most appealing pitch for a fund. But there might be a contrarian case here – and investors might also like the trust’s dividend yield of around 7%. 

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Another small UK equity play is Onward Opportunities Ltd (LSE:ONWD), which has concentrated positions in companies and targets a punchy absolute return of 15% or more a year. 

The fund, to its credit, has made a share price total return of 26% over the last 12 months. And having only launched in 2023, it is growing well, having reached a market cap of £55 million. 

Further afield 

I would generally argue that a smaller fund might be worth backing if it’s offering something different, if it’s delivering good returns, if it has good prospects for growth, or ideally all three. 

That brings me to a handful of very different names. Take, for example, Achilles Investment Company Ord (LSE:AIC), which operates as an activist investor in other trusts. The fund is understandably very secretive about its investments but tends to target a limited number of trusts. 

We know it was involved with Urban Logistics REIT (ultimately bought by LondonMetric Property (LSE:LMP)) and likely also with Life Science REIT, which was acquired by British Land Co (LSE:BLND). 

Investors may well like the activist approach – although Achilles shares have performed very poorly in the last year. Investors can also back other activist investors (from Saba to AVI), or even simply buy directly into the trusts they target. 

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It’s worth briefly touching on a few other names. 

There’s Geiger Counter Ord (LSE:GCL), which focuses on uranium via a concentrated portfolio of shares including NexGen Energy Ltd (TSE:NXE), Ur-Energy Inc (AMEX:URG) and Paladin Energy Ltd (ASX:PDN).  

It has certainly had its share of the volatility evident in the commodities space in the last year: the trust’s shares have returned almost 14% over a year, but lost 15% over six months. 

And turning to some overseas markets, we have the still relatively new Ashoka WhiteOak Emerging Markets Ord (LSE:AWEM), as well as VietNam Holding Ord (LSE:VNH). The latter has had a bad year in terms of performance, as have its two rivals to a lesser extent. 

With scale concerns continuing to dominate, there are plenty of bigger trusts to choose from for many. But a few smaller names could warrant a little faith from shareholders.