One of the newest kids on the investment trust block is the Onward Opportunities Investment Trust [LON:ONWD] which was admitted to AIM on 30th April.
The fund is focussed on actively capturing growth opportunities from small-cap stocks in the UK to generate absolute returns for its clients.
The fund is the progeny of Dowgate Wealth, the London-based investment manager with around GBP500m assets under management. The Onward Opportunities Fund is managed by Laurence Hulse as investment director, who joined Dowgate last September from Gresham House, where he started his career in 2015.
Hulse is joined in the investment room by Tom Teichman as investment committee member, Teichman has been in the industry for over 40 years and is supported by other veterans, Mark Chadwick, CEO and Investment Director of Dowgate, which he co-founded in 2020, David Poutney and Jay Patel, general manager of Cisco’s Webex CPaaS initiative.
The fund, will target a return on investments of at least 2.0x invested capital over a three-to-five-year period, aiming at a total annualised return of at least 15% a year from the performance of the smaller companies in its portfolio.
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Smaller companies woefully under-researched
To do this, do this Onward Opportunities said it is deploying a specialist strategy tailored to capture structural market opportunities in UK smaller companies. The fund manager said: “Rising costs and regulatory pressures for advisers and other investors have increasingly restricted the flow of research and level of investment into smaller companies – this is the bedrock of the opportunity the strategy is targeting.”
The premise that smaller companies are woefully under-researched in the UK is quite true, as the staff of The Armchair Trader can attest. The fund manager continued: “Our proactive investment strategy and expertise enables us to invest in these smaller companies, using various structures and techniques to target the market inefficiencies from which [we can] source returns for our clients.”
Onward Opprtunities seeks to achieve its investment objective by investing primarily in equity and equity-related securities of UK smaller companies that are predominantly listed or admitted to trading on markets operated by the London Stock Exchange “where it is considered that there is a material potential valuation upside that can be delivered from catalysing strategic, operational or management initiatives”.
Active engagement with companies
In order to ensure that the fund is able to effectively maintain its approach of active engagement with investee companies, and to encourage and support value creation, the fund will typically target meaningful minority stakes in portfolio target companies of between 5%. and 25% of the company’s issued share capital.
Whilst the Onward Opportunities fund has no limitation on the size of the market capitalisation of the companies in which it can invest, it typically expects to invest in companies with market capitalisations of no more than GBP250m, with a particular focus on those below GBP100m, at the time of investment. The fund is focussing on investments in the ‘micro’ smaller companies sector, and on companies admitted to trading on AIM.
The fund manger said: “We focus on the tangible. We believe in investing in businesses, strategies and catalysts that we can see and understand. This we think gives us the best opportunity to value a company today and to assess its intrinsic value tomorrow. We then aim to purchase it at a discount to both of those values.”
Onward Opportunities key triggers
The key triggers that the fund is seeking from potential investments is balance sheet asset backing; a competitive advantage and/or strong management track record; attractive cash flow potential; the visibility of earnings and future earnings improvement; the potential for liquidity and/or exit in line with the fund’s targeted hold period; the scope for an active shareholder to trigger value creation; and for foreseeable events and catalysts to unlock intrinsic value in the target company.Currently the main shareholder in the fund is Dowgate Wealth, which owns just shy of 42% of the share capital, the majority of which is held on behalf of its discretionary clients and Dowgate Wealth is not the principal shareholder. Dowgate Capital is the joint broker with Cenkos Securities.
Hulse said at the fund’s launch: “We are pulling together for clients the three core ingredients to make money; a clear market opportunity, a bespoke strategy to capture it and the people required to execute the plan. This launch puts in place the foundations to grow an investment company that can actively engage with UK smaller companies we identify value in.”
As it’s early days, the fund has not yet published a holdings list. The fund was admitted to AIM at a price of 100p per placing share and raised GBP12.8m in gross proceeds. Net proceeds are to be invested in portfolio companies.
The Onward Opportunities fund opened trading on 30th May at 105.05p and closed out at 105.5p with a market capitalisation of GBP13.5m.