Ian Cowie: specialist investment trust up 36% over one month

Science fiction is turning into commercial fact in the skies above our heads, with shares in an investment trust I told you about a month ago soaring 36% higher since then. Sad to say, down here at ground level, human brutality and stupidity are two of the factors driving prices skyward.

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But there is next to nothing this DIY investor can do about Russia’s decision to invade Ukraine, so I might as well help - in however small a way - to capitalise the latest extraterrestrial technology to defend Europe. Step forward Seraphim Space Investment Trust Ord (LSE:SSIT), the self-descriptive fund focused on satellites and associated activities that are playing an increasingly important role in the war, as well as more peaceful and sustainable business, such as predicting the weather.

Coming down from the clouds of geopolitics and macroeconomics, I paid 53p per share, as reported here in April, for SSIT stock that cost 72p this week. Monday’s decision by Friedrich Merz, the German chancellor, to back Ukrainian missile strikes even deeper into Russian territory helped propel the price higher.

It's important to beware that this £240 million fund is about as risky as investment trusts get, with most of its portfolio’s shares in small and/or start-up businesses that are currently making losses. Needless to say, there is no dividend income.

Worse still, SSIT’s underlying assets are mostly working with cutting-edge technologies which might yet dash enthusiasts’ dreams and destroy investors’ capital. So don’t say you weren’t warned.

On a brighter note, billions of dollars, euros and pounds are pouring into this sector. The European Union recently approved boosting members’ defence spending by €650 billion (£545 billion) over the next four years. Most of this will be spent in Europe, hopefully including Britain, since America warned it has other priorities, as explained here last month.

Last week, US President Donald Trump pledged $25 billion (£18.5 billion) additional investment in a futuristic “Golden Dome” defence system. This is aimed at countering aerial threats to the US, including ballistic and cruise missiles.

Closer to home, Prime Minister Keir Starmer is trying to explain to peaceniks - like me - that wishing the Russian threat will go away won’t make it so. More specifically, he announced Britain’s biggest increase in defence spending since the Cold War, aiming to hit 2.5% of gross domestic product (GDP), a measure of economic output, by 2027 and 3% in the next Parliament, when paying for all that might be someone else’s problem.

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Here and now, SSIT chair, Will Whitehorn, sets out the bull case or optimists’ argument: “This trust’s three largest holdings - namely, ICEYE, D-Orbit and ALL.SPACE - account for half of net asset value (NAV). They are all European companies with world-leading technology already being acquired by departments of defence in Europe and America.”

Encouragingly, three of SSIT’s four directors say they have invested more in its shares than the annual fees it pays them, with the fourth not far behind. Whitehorn has put in nearly three years’ fees.

He added: “The portfolio is positioned to play a key role in securing Europe’s long-term defence security as well as commercially benefiting from the European defence fund, with 16 of the 25 companies in the trust – accounting for 65% of NAV - based and operating in Europe. Half the portfolio by number, with 78% by NAV, are addressing defence requirements of governments in intelligence, communication, mobility and cybersecurity.”

As discussed here before, ICEYE is a Finnish manufacturer of micro-satellites that claims to be the world leader in a specialist form of radar; “synthetic aperture imaging”. D-Orbit is an Italian maker of space tugs, more formally known as “orbital transfer vehicles”, that can move stuff around in the skies and might also disable unfriendly satellites. ALL.SPACE is based in Reading, Berkshire, where it makes military-grade communication systems which, reassuringly, cannot be turned off by an enemy or former ally.

European countries are unlikely to return to relying on the US or cut our defence spending, even if Trump were to announce he intends to marry Putin tomorrow.

Nothing would surprise me now, with alleged arson attacks on our prime minister’s property merely the latest of mysterious events that demonstrate the importance of effective security in an unpredictable world. It’s not rocket science, is it?

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Seraphim Space Investment Trust (SSIT) as part of a globally diversified portfolio of investment trusts and other shares.