Downing Strategic Micro-Cap Investment Trust IPO

mutley74

What does anyone think of the Downing Strategic Micro-Cap Investment Trust IPO?
Min investment of £1,000.

The same Fund managed by the same has a reasonable track record. My concern is how Brexit will hit UK industry and stocks over the next few years.
What does other think?

jamei305

You'd hope that the "strategic" in the name would imply the managers would focus on companies set to benefit from Brexit in some way.

mutley74

jamei305 wrote: »

You'd hope that the "strategic" in the name would imply the managers would focus on companies set to benefit from Brexit in some way.

one would but I presume, no one really knows how Brexit will help or suppress the economy.

AnotherJoe

I saw this and was interested until I saw it wasnt a VCT to account for the risk.

bowlhead99

If it was a VCT (and Downing do also run VCTs) they would have a much more limited pool of investment opportunities because they would generally only be able to invest in new fundraisings from qualifying companies, which is significantly more limiting than being able to buy on the open market and taking large strategic stakes in companies of all ages.

I'm going to have a small piece of this (couple of thousand) with some spare cash in my SIPP as I have some capacity in my 'play money' end of the portfolio.

The concept reminds me of Strategic Equity Capital which had been very successful for me over recent years (though its concentrated portfolio in smallcaps and the consequential loss potential is significant, over 80% loss peak to trough from 2007 to end of 2008).

Morphoton

For me personally it is too concentrated having only 12-18 holdings and IMHO I think a target 15% pa may be too optimistic over the whole of an economic cycle. More info:
http://www.downing.co.uk/news-views/downing-launches-strategic-micro-cap-investment-trust-targeting-15-pa-return

murmeltier

Can anyone explain why the initial NAV at 98p will be 2p below the issue price? Is this usual for this type of IPO?

Would someone wanting to invest not be better off waiting for the IPO and then buying at 98p + spread?

I'm sure I'm missing something!

mutley74

Morphoton wrote: »

For me personally it is too concentrated having only 12-18 holdings and IMHO I think a target 15% pa may be too optimistic over the whole of an economic cycle. More info:
http://www.downing.co.uk/news-views/downing-launches-strategic-micro-cap-investment-trust-targeting-15-pa-return

I thought 12-18 seemed quite a small number too.
With HL they give an 0.5% uplift in holdings if you take the IPO. I thinking of putting away £1k of my ISA on it.

bowlhead99

murmeltier wrote: »

Can anyone explain why the initial NAV at 98p will be 2p below the issue price? Is this usual for this type of IPO?

They are creating a £100m closed-ended fund vehicle, fundraising and listing it on the stock exchange. That'll incur £1-2 million quid of costs from the lawyers, investment bankers and brokers involved. Not particularly unusual. They are projecting £1.85m if they raise £100m, and have then rounded down the 98.15p resulting NAV to 98p.

Would someone wanting to invest not be better off waiting for the IPO and then buying at 98p + spread?

It is not an open-ended fund, it's closed ended, which means the number of shares in issue are limited. If you want to buy a share, you have to buy it off someone else who has got a share to sell.

Tell me: if I participated in the fundraising and gave them 100p for a share in their company, why would I then sell it to you the following week for 98p if the company hadn't made any losses other than the known launch costs?

I'm sure I'm missing something!

How investment trusts work.

mutley74 wrote: »

I thought 12-18 seemed quite a small number too.

Well, they're hardly going to be able to take meaningful stakes of 3-25% of a bunch of listed companies, as per their strategy, if they are going to invest in, say, 50 listed companies and they only have £100m to spend.

With HL they give an 0.5% uplift in holdings if you take the IPO.

HL take 0.45% of the asset value you have invested in shares in companies, investment trusts and other stock-exchange listed entities like ETFs, *per year* as an ongoing admin fee for their ISA (albeit capped at £10k / £45). And the same 0.45% s year on open-ended funds too (with much much higher caps).

So, they can well afford to give away some of the commissions they receive for drumming up investors to participate in the fundraising, because they are literally the most expensive DIY investment platform in town in terms of a percentage rate on assets under administration.

le_loup

bowlhead99 wrote: »

because they are literally the most expensive DIY investment platform in town in terms of a percentage rate on assets under administration.

For ITs?
With a £45 a year cap, it don't seem expensive to me.

bowlhead99

le_loup wrote: »

For ITs?
With a £45 a year cap, it don't seem expensive to me.

Yes, I mentioned the cap.

Few stockbrokers charge much for simply holding shares / ITs, because they make their money when you trade them and they charge you a fee at that point - that's the dominant model in the industry (vs funds where the dominant model is still a percentage basis).

If you're mutley74 with a £1k potential investment, and perhaps below the £10k cap on your total exchange-traded stuff (as many of HL's customers are, because their fund supermarket side is larger than their stockbroking side), they're going to be making £4.50 off you every year on the admin fee for holding the Downing offering, and £12.50 if you ever sell a part of it (which is about the highest rate you'll find in the market for simple UK sharedealing among the mainstream providers), so they can afford to bung you an initial fiver out of the commission they're getting from Downing themselves.

Clearly if you've already got tens of thousands of shares or ETFs or ITs then you won't be paying any incremental fees to HL for adding another £1k of holding, but the amount you're paying HL overall as the 'capped' fee for owning shares is still more than you'd be paying at Halifax/IWeb, TD Direct, Youinvest, Lloyds etc etc