Montanaro UK Smaller Companies Investment Trust PLC · LSE:MTU
Montanaro UK Smaller Companies Investment Trust — Shareholder Meeting (August 2021)
54 slides from Montanaro UK Smaller Companies Investment Trust's shareholder meeting presentation, August 2021
Slide 1: MUSCIT 2021 AGM - Presentation to Investors
UK Smaller Companies Investment Trust (“MUSCIT”) 2021 AGM - Presentation to Investors Review of Q2 2021 & Outlook Montanaro Asset Management Ltd 53 Threadneedle Street, London EC2R 8AR www.montanaro.co.uk enquiries@montanaro.co.uk Tel: +44 (0)20 7448 8600 Follow us on Twitter: @MontanaroAM
Slide 2: Disclaimer
30 June 2021 unless stated otherwise Disclaimer Important Notice This document is issued by Montanaro Asset Management Limited (“MAM”) for distribution only to persons of the kind described in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or of a kind
Slide 3: Key messages
30 June 2021 unless stated otherwise Key messages 1. A strong start to the new Financial Year (ending March 2022): – NAV up 12% YTD and c.7% ahead of the Benchmark * – style rotation in favour of Value has abated (fears of inflation are fading) 2. Significant inflows into UK SmallCap in recent month
Slide 4: Returns – a strong start to the new Financial Year
30 June 2021 unless stated otherwise Returns – a strong start to the new Financial Year NAV returns to 30 June 2021 (GBP): Share Price: +12.1% UK Small Cap Montanaro NAV Composite (ex Relative ICs) (£)*** 3 Months 12.0% 5.5% 6.6% 6 Months 15.1% 17.4% -2.3% 1 Year 36.1% 49.8% -13.7% 3 Years 8.3% 6.1%
Slide 5: Returns by Calendar year
30 June 2021 unless stated otherwise Returns by Calendar year MUSCIT - Calendar Year Returns (TR, GBP) 80% 67% 60% 48% 44% 37% 40% 34% 27% 28% 29% 27% 25% 23% 14% 16% 16% 15% 20% 9% 8% 0% -4% -2% -2% -5% -7% -6% -20% -19% -18% -40% -32% H1 NAV Return (TR): +15.1% -37% H1 Share Price Return (TR): +13
Slide 6: Update on Montanaro
30 June 2021 unless stated otherwise Update on Montanaro • AuM of over £4 billion • Montanaro Global Innovation Fund launched at the end of June 2021: – offers access to the most promising Technology names in Global Small & MidCap – Montanaro has invested £4.5 million of its own money • Team is comp
Slide 7: We have grown to a Team of 36 and hire in Bear Markets
30 June 2021 unless stated otherwise We have grown to a Team of 36 and hire in Bear Markets Bear Bear Market 40 • 64% here for over 5 years and 36% for over 10 years Market 36 • 10 different nationalities 35 • 12 Analysts - average experience 18 years (average 33 age of team 40 years) 30 29 29 30 •
Slide 8: Montanaro is different
30 June 2021 unless stated otherwise Montanaro is different 1. It is our business - we look after £4 billion 2. One big family - no big egos 3. Conservative - we invest in our own funds 4. Long-term investors (we think 10 years +) 5. We avoid brokers 6. Focused - Small & MidCap are all that we do 7.
Slide 9: Our investment philosophy: Quality & Growth
30 June 2021 unless stated otherwise Our investment philosophy: QUALITY & GROWTH 1. Simple businesses we can understand 2. Profitable 3. Niche businesses in growth markets 4. Market leaders 5. Businesses with High Operating Margins and a High Return on Capital 6. Good Management we trust 7. Don’t Tr
Slide 10: Our Investment Process is all about identifying Quality
30 June 2021 unless stated otherwise Our Investment Process is all about identifying Quality Stage 1: Is it a good business? “QUALITY” NEW IDEAS: QUALITY CHECKLIST: • Proprietary Screens INVESTMENT APPROVED • Financial Model • Growth Themes COMMITTEE LIST • S.W.O.T. analysis Decision ~200 • Referral
Slide 11: We are disciplined in portfolio construction to manage risk
30 June 2021 unless stated otherwise We are disciplined in portfolio construction to manage risk Each Investment has a TARGET % PORTFOLIO WEIGHTING (1% – 3%) based on: Weighting Criteria: “Quality” APPROVED 45 – 55 RISK / QUALITY VALUATION LIST LIQUIDITY Holdings ~250 Companies Internal Risk Guideli
Slide 12: Over the long run SmallCap Quality Growth has performed best
30 June 2021 unless stated otherwise Over the long run SmallCap “Quality Growth” has performed best Global Excess Returns by Size & Quality (1989 - Dec 2020, excess return vs T-Bills) 1,400 +9.5% 1,300 Small - HIGH QUALITY p.a. 1,200 Small - LOW QUALITY 1,100 Large - HIGH QUALITY 1,000 Large - LOW Q
Slide 13: Our Top 20 holdings
30 June 2021 unless stated otherwise Our Top 20 holdings Company Country % Company Country % Discoverie Group UK 4.8% Marshalls UK 3.1% NCC Group UK 4.2% YouGov UK 3.0% Treatt UK 4.0% Ideagen UK 2.7% Liontrust Asset Management UK 3.8% Integrafin UK 2.6% XP Power UK 3.8% Tracsis UK 2.3% Dechra Pharma
Slide 14: Major Buys / Sells in Q2 2021
30 June 2021 unless stated otherwise Major Buys / Sells in Q2 2021 PURCHASES Value (£m) SALES Value (£m) Maxcyte 1.5 GB Group -1.2 Boku 0.9 RWS -1.1 Polar Capital 0.8 Eco Animal Health -0.7 Frontier Developments 0.7 Strix Group -0.7 Kainos 0.7 First Derivatives -0.6 AIM Source: Internal. 13
Slide 15: Sectors – overweight Industrials, IT & Health Care; no Energy
30 June 2021 unless stated otherwise Sectors – overweight Industrials, IT & Health Care; no Energy INDUSTRIALS Breakdown: 40% Construction Materials: 5% Aerospace & Defense: 2% Electronic & Electrical Equipment: 10% 35% Industrial Transportation: 3% 30% Industrial Engineering: 1% 30% Aerospace & Def
Slide 16: Revenues by Country
30 June 2021 unless stated otherwise Revenues by Country Asia: other, 0% Emerging Markets Japan, 1% South & Central = 9% Western Europe, America, 1% 17% Africa, 0% United Kingdom, Australasia, 2% 43% North America, 28% Eastern Europe, 2% Southeast & South Asia, 2% Middle East, 1% China, 3% Source: I
Slide 17: Size - a SmallCap portfolio with no exposure to the FTSE-100
30 June 2021 unless stated otherwise Size - a SmallCap portfolio with no exposure to the FTSE-100 50% FTSE SmallCap (ex-IC): 12% (5 holdings) FTSE 250: 50% (19 holdings) 46% FTSE 100: 0% (0 holdings) 45% AIM: 38% (26 holdings) 40% 37% 37% 35% 33% MUSCIT 30% NSCI Benchmark 25% 20% 14% 14% 15% 10% 7%
Slide 18: A portfolio of High Growth companies with strong balance sheets
30 June 2021 unless stated otherwise A portfolio of High Growth companies with strong balance sheets Portfolio Characteristics Growth (2021F) Numis SmallCap Numis SmallCap MUSCIT MUSCIT (ex-IC) Index (ex-IC) Index # Stocks 50 323 Sales Growth 16.0% 6.6% Weighted Market Cap (£bn) 1.2 1.02 EPS Growth
Slide 19: A portfolio of High Quality companies
30 June 2021 unless stated otherwise A portfolio of High Quality companies 2015 2016 2017 2018 2019 2020 2021e MUSCIT Bench. Revenue Growth 11% 12% 14% 11% 10% 4% 15% 7% 10Y EPS Growth (Trail.) n/a 11% 11% 12% 11% 12% n/a n/a EBIT Margin 20% 19% 16% 16% 16% 17% 20% 16% RoE 17% 18% 18% 16% 17% 15% 17
Slide 20: Our companies typically deliver higher EPS growth than the index
30 June 2021 unless stated otherwise Our companies typically deliver higher EPS growth than the index 18% Consensus EPS Growth - 2015 15% Consensus EPS Growth - 2016 14% Consensus EPS Growth - 2017 16% 12% 12% 14% 9% 10% 12% 6% 8% 10% 3% 6% 8% 0% 4% 6% -3% 2% MUSCIT -6% 4% 0% NSCI ex-ICs Index -9% 2
Slide 21: Relative performance attribution – Q2 2021
30 June 2021 unless stated otherwise Relative performance attribution – Q2 2021 (a quiet quarter) POSITIVE NEGATIVE DiscoverIE 1.2% Ideagen -0.4% Cerillion 0.7% Avon Rubber -0.3% Dechra Pharmaceuticals 0.7% First Derivatives -0.3% Liontrust Asset Management 0.7% Judges Scientific -0.3% Tracsis 0.7%
Slide 22: Relative performance attribution – 12 months
30 June 2021 unless stated otherwise Relative performance attribution – 12 months POSITIVE NEGATIVE Treatt 1.4% Avon Rubber -1.4% DiscoverIE 0.9% Hilton Food -1.3% Kainos 0.8% Marshalls -1.1% Cerillion 0.7% 4imprint -1.1% Auction Tech. Group 0.5% James Fisher and Sons -1.1% TOTAL 4.4% TOTAL -6.0% AI
Slide 23: Absolute NAV returns by Financial Year
30 June 2021 unless stated otherwise Absolute NAV returns by Financial Year (March to March) Charles Other PM 1 Charles Other PMs 2 Charles 58% (from 24 June 2016) 53% 50% 47% 40% 39% 36% 28% 24% 25% 25% 20% 21% 12% 11% 11% 12% 8% 4% 1% 0% -4% -3% -6% -5% -8% -11% -17% -25% -37% -40% -50% 95/96 96/9
Slide 24: Relative NAV returns by Financial Year – a good start to FY22
30 June 2021 unless stated otherwise Relative NAV returns by Financial Year – a good start to FY22 Charles Other PM 1 Charles Other PMs 2 Charles (from 24 June 2016) 28% 25% 19% 20% 17% 16% 13% 14% 15% 11% 10% 10% 8% 7% 7% 7% 5% 4% 5% 5% 0% 1% 0% 0% -1% 0% -5% -3% -5% -5% -5% -10% -15% -12% -15% -20
Slide 25: Over 5 years MUSCIT delivered positive returns 95% of the time
30 June 2021 unless stated otherwise Over 5 years MUSCIT delivered positive returns 95% of the time MUSCIT - 5-year NAV Rolling Return (annualised, Net Total Returns) 30% 25% 20% 15% 12.6% p.a. 10% 5% 0% -5% -10% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: Internal, Blo
Slide 26: Outlook
30 June 2021 unless stated otherwise Outlook 25
Slide 27: The COVID Bear Market recovery was the fastest of the past 50 years
30 June 2021 unless stated otherwise The COVID Bear Market recovery was the fastest of the past 50 years UK SmallCap - Number of months to recover losses after a Bear Market 110 1.2 Years 4.8 Years 5 Years 5.7 Years 6.4 Years 100 -20% 90 80 70 60 Global Financial Crisis (2007-09) 50 COVID 2020 TMT (
Slide 28: Reflecting the speed of the post-COVID global economic recovery
30 June 2021 unless stated otherwise … reflecting the speed of the post-COVID global economic recovery Leading Indicators Y-o-Y 20% UK 16% 14.7% 12% USA 8% 4% 0% -0.6% -4% -8% -12% -16% -20% -24% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Int
Slide 29: Strong recovery in Value since November 2020
30 June 2021 unless stated otherwise … which sparked a strong recovery in Value since November 2020 GROWTH outperforms 12% 130 VALUE 8% outperforms 4% 120 0% 110 -4% SmallCap GROWTH v. VALUE -8% UK Leading Indicator, y-o-y (RHS) 100 -12% -16% 90 -20% 80 -24% 08 09 10 11 12 13 14 15 16 17 18 19 20 So
Slide 30: Value outperformed Growth by 29% between Nov 2020 and Jun 2021
30 June 2021 unless stated otherwise Value outperformed Growth by 29% between Nov 2020 and Jun 2021 MSCI UK Small Cap GROWTH v. VALUE (GBP) 150 H2 2019: 2020/21: 2009: 2012/13: BREXIT Deal COVID Vaccines Bull Market begins Draghi Speech 6 months 8 months 5 months 18 months U/P of 8% U/P of 29% 140 U
Slide 31: Style rotation started to abate through the second quarter
30 June 2021 unless stated otherwise … but the style rotation started to abate through the second quarter UK SmallCap - GROWTH minus VALUE 15% 11% 10% 10% 10% 6% 7% 5% 4% 3% 3% 3% 3% 5% 2% 0% 1% 1% 1% 1% 0% 0% 1% 0% -1% -1%-1% 0% -1% -1% -2% -1% -5% -3%-3% -2% -3% -6% -6% -10% -7% -10% -15% -20% -18
Slide 32: High Quality even managed to outperform
30 June 2021 unless stated otherwise … and High Quality even managed to outperform UK SmallCap - High v. Low QUALITY 15% 9% 9% 10% 8% 8% 5% 5% 5% 6% 5% 5% 4% 3% 3% 2% 4% 5% 2% 0% 0% -1% 0% 0% -5% -5% -5% -7% -10% -8% -15% -20% -18% -25% 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19 2Q20 4Q20 2Q2
Slide 33: US Treasury yields settled down after peaking in March
30 June 2021 unless stated otherwise … as US Treasury yields settled down after peaking in March US 10 Year Treasury Bond Yield 5.00% 4.50% QE1 Bull Market starts 4.00% Nov 2018: 3.24% 3.50% Trump 3.00% “Taper election Tantrum” 2.50% Mar 2021: 2.00% 1.74% Dec 2008: 1.50% 2.05% Jun 2021: 1.00% Jul 20
Slide 34: Inflation expectations stopped rising
30 June 2021 unless stated otherwise … and inflation expectations stopped rising 5-Year Breakeven Inflation Rate 4.0% 3.5% 3.3% 3.0% 2.5% 2.5% 2.0% 1.5% 1.0% UK 0.5% US March 2020: 0.2% 0.0% 11 12 13 14 15 16 17 18 19 20 21 Source: Internal, Bloomberg. 33
Slide 35: Fund Managers now think that inflation will only be transitory
30 June 2021 unless stated otherwise Fund Managers now think that inflation will only be transitory Source: Bank of America, Global Fund Managers Survey June 2021. 34
Slide 36: Fund Managers are still heavily overweight Cyclicals
30 June 2021 unless stated otherwise Fund Managers are still heavily overweight Cyclicals Source: Bank of America, Global Fund Managers Survey June 2021. 35
Slide 37: Historically, SmallCap has done well when bond yields were rising
30 June 2021 unless stated otherwise Historically, SmallCap has done well when bond yields were rising UK SmallCap Relative Performance v. US Bond Yields 880 18% BEAR MARKET in Bonds BULL MARKET in Bonds 780 1954 - 1981 1981 - 2016? 16% UK SmallCap: +17.9% p.a. UK SmallCap: +13.1% p.a. UK LargeCap =
Slide 38: …and in most environments except galloping inflation
30 June 2021 unless stated otherwise … and in most environments except galloping inflation Small v. LargeCap under Different Inflation Conditions (12m Relative Performance vs UK RPI y-o-y, 1962 - 2016) 12% DEFLATION MODEST HIGH VERY HIGH Inflation Inflation Inflation 10% 8.6% 8% 5.9% 5.5% 6% 4% 2.9%
Slide 39: With Brexit out of the way, UK equities are due a catch-up
30 June 2021 unless stated otherwise With Brexit out of the way, UK equities are due a catch-up Index Performances since 31 January 2015 (rebased, all in GBP) 350 +241% FTSE All-Share S&P 500 300 MSCI Europe Nikkei 225 250 Shangai Composite NASDAQ +134% 200 +87% 150 +37% +18% +11% 100 50 15 16 17 18
Slide 40: Global investors started returning to the UK in May after 7 years
30 June 2021 unless stated otherwise Global investors started returning to the UK in May after 7 years Source: Montanaro, Bloomberg. 39
Slide 41: UK SmallCap is attracting large inflows once again
30 June 2021 unless stated otherwise … and UK SmallCap is attracting large inflows once again Net Flows into UK SmallCap Funds (£ million) 1,000 859 760 500 162 92 0 (49) (93) (48) (178) (222) (241) (242) (50 0) (398) (490) (1,0 00) UK SmallCap has seen £2.2 billion of 2016: Brexit (906) Referendum
Slide 42: UK SmallCap is trading slightly above its long-term P/E average
30 June 2021 unless stated otherwise UK SmallCap is trading slightly above its long-term P/E average UK SmallCap (NSCI ex-IC index) - 12m Fwd P/E 18 17 16 15 14.4x 14 13 12 Average = 13.0x 11 10 9 8 7 6 5 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: Montanaro, Factset, Bloomberg. 41
Slide 43: Small P/E premium to LargeCap
30 June 2021 unless stated otherwise … and it is on a small P/E premium to LargeCap 12m Fwd P/E Small v. LargeCap (NSCI ex-IT v. FTSE All-Share) 60% 47% Sep 2008 50% 33% 40% Sep 2011 30% 20% 10% +11% Average = 1.5% 0% (10%) (20%) (30%) -24% -23% Jun 2016 Apr 2020 (COVID) (40%) -41% (50%) Mar 2009 (G
Slide 44: UK SmallCap offers plenty of upside
30 June 2021 unless stated otherwise Our number crunching suggests UK SmallCap offers plenty of upside Estimated Annualised Total Returns over the next 7 years *: (per annum) Dividends EPS Growth P/E Change Total Return HIGHEST Numis SmallCap (ex.IT) 2.3% 13.6% -3.4% 12.7% Expected Returns FTSE All-
Slide 45: Market timing is hard - and missing the recovery can be costly
30 June 2021 unless stated otherwise Market timing is hard - and missing the recovery can be costly Numis UK Smaller Companies Index - Price Returns (in GBP, Jan 1987 - Jun 2021) 750 NSCI Index The 5 best months for UK SmallCap since 1987: 650 Exc 3 Best Mths 1/ Apr 2009: +18.4% -34% 2/ Feb 1991: +1
Slide 46: Our Dividend Policy: 1% of NAV paid out each quarter
30 June 2021 unless stated otherwise Our Dividend Policy: 1% of NAV paid out each quarter MUSCIT - Dividend Per Share (GBp) Past dividends are adjusted for the 5-for-1 share split in July 2018 6.00 27 July 2018: Revised Dividend Policy 5.52 (Target 4% of NAV p.a.) 5.31 5.00 4.00 26 July 2018: New Di
Slide 47: MUSCIT has the highest yield within its peer group
30 June 2021 unless stated otherwise MUSCIT has the highest yield within its peer group 12m Historic Yield (as at 30 June 2021) 4.0% 3.4% 3.5% 3.1% 3.0% 2.5% 2.2% 1.9% 2.0% 1.7% 1.7% 1.5% 1.4% 1.1% 1.1% 1.0% 0.8% 0.5% 0.0% FTSE AIM BlackRock Standard Li fe JPMorgan Numi s BlackRock Henderson Aberfor
Slide 48: Attractive income has led to the discount narrowing
30 June 2021 unless stated otherwise Offering an attractive income has led to the discount narrowing MUSCIT - Discount 0% -2% -2% 26 July 2018: New -4% Dividend Policy -6% announced -8% -10% -12% -14% -16% -18% -20% -22% -24% -26% 10 11 12 13 14 15 16 17 18 19 20 21 Source: Internal, Bloomberg. 47
Slide 49: We have cut costs significantly and halved our management fee
30 June 2021 unless stated otherwise We have cut costs significantly and halved our management fee Ongoing Charge MUSCIT - Costs (ex Finance Costs) Performance Fees 2.00% 2014: AMC cut to 0.85% from 1% p.a. 0.60% 2017: AMC cut to Perf. Fee removed 0.60% 0.5% from 0.85% p.a. 1.50% 1.00% 1.9% 1.7% 1.5
Slide 50: MUSCIT has performed well since 1995
30 June 2021 unless stated otherwise MUSCIT has performed well since 1995 Cumul ative Total Returns since MUSCIT l aunch (31 Ma r 1995 - 30 Jun 2021) 10.0% 1,200 p.a. 1,100 MUSCIT 1,000 Benchmark 900 Numis LargeCap Index 800 7.7% 700 p.a. 600 7.0% p.a. 500 400 300 200 100 - 95 96 97 98 99 00 01 02 0
Slide 51: NAV grown at 10% p.a. since launch (after fees)
30 June 2021 unless stated otherwise … and it has grown its NAV at 10% p.a. since launch (after fees) Annualised Return since MUSCIT Launch (31 March 1995, all Total Returns in GBP) 11% 10.0% 10% 9.3% 9% 8.4% 8% 7.7% 7.3% 7% 6.1% 6% 5% 4% 2.8% 3% 2% 1% AIM UK Houses FTSE All-Share Benchmark * FTSE S
Slide 52: Summary
30 June 2021 unless stated otherwise Summary 1. A strong start to the new Financial Year (ending March 2022): – NAV up 12% YTD and c.7% ahead of the Benchmark * – style rotation in favour of Value has abated (fears of inflation are fading) 2. Significant inflows into UK SmallCap in recent months – t
Slide 53: Main Contacts - Investments
30 June 2021 unless stated otherwise Main Contacts - Investments Charles Montanaro Mark Rogers George Cooke Fund Manager Fund Manager Head of Fund Management Chairman Head of Investments gcooke@montanaro.co.uk cmontanaro@montanaro.co.uk mrogers@montanaro.co.uk Ed Heaven Kate Hewitt Head of Sustainab
Slide 54: Main Contacts - Distribution
30 June 2021 unless stated otherwise Main Contacts - Distribution Tom Norman-Butler Christian Albuisson Henrik Schmidt Head of Business Devel. Benelux, Canada, France, Scandinavia UK & Ireland Scotland, Spain tnormanbutler@montanaro.co.uk calbuisson@montanaro.co.uk hschmidt@montanaro.co.uk Chris Cri
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