Miton UK MicroCap Trust plc (LON:MINI) has announced its Factsheet for June 2024.
Manager commentary
During June US stock market conditions remained buoyant, such that the collective valuation of the top three US technology mega-caps, the largest companies in the investment universe by valuation, edged towards $10,000 billion!
It is most unusual to have so much finance crowded into such a small number of very large, quoted (i.e.
listed on a stock exchange) companies, especially given that history is against them. One of the very few consistent stock market patterns identified by academics is that of the smaller company effect – the smaller the quoted company, the better its return on average.
Betting against history can work at times, but it is a mistake to assume it will work all of the time.
Furthermore, one of the problems that often comes with nationalist and protectionist policies (i.e. policies
designed to protect a country’s domestic industries from foreign competition), is that market conditions
can switch from an abundance of market liquidity (investments that can be sold easily) to chronic shortfalls. When this occurs, then in our view the US stock market will lose its upward momentum, probably for an extended period.
Interestingly, when it is harder to buy and sell company shares (i.e. market liquidity is tight), less
high-profile quoted companies with net cash, and the potential support of institutional capital, sometimes have the best opportunities.
They can continue to develop by expanding into markets vacated by insolvencies. They can acquire over-borrowed but otherwise viable companies – sometimes for as little as £1 – debt-free from the receiver. In short, when market liquidity becomes tight, the US stock market might not just lose its upward momentum, but at the same time wellfinanced quoted micro-caps, or smaller companies, will in our view start to excel.
UK-quoted micro-caps stand on what we consider to be absurdly low valuations currently, so we believe
their potential to be considerably greater than others. So, if investors do cease to channel finance into US mega-caps, we believe that UK-quoted, micro-cap outperformance won’t just accelerate, but will also become persistent for years and years to come.
Gervais Williams & Martin Turner
30.06.2024
Miton UK MicroCap Trust (LON:MINI) intends to invest primarily in the smallest companies, measured by their market capitalisation and quoted or traded on an exchange in the United Kingdom.
