This fund aims for income and growth by investing directly in UK smaller companies, indirectly through investment trusts and other funds, and in deposits and money market instruments. The fund will hold up to 40 UK smaller companies on the London Stock Exchange main market, Aim and Plus that have a market capitalisation of less than £300m.
The fund will be managed by the T1ps investment team led by former small cap share tipster Tom Winnifrith, Robert Sutherland-Smith and James Faulkner. Research is at the heart of the team’s investment process because of the potential risks specific to smaller companies, such as the inability to survive losing a big customer. In-depth research is also needed to get an accurate picture of future revenue.
Smaller companies are finding it hard to finance growth as banks are still not lending and T1ps says this is provides good opportunities for this fund. Its investments will take the form of ordinary shares and convertible loan notes that generate a high rate of interest and can be converted into ordinary shares when a company delivers and its shares are re-rated. The illiquidity of the loan notes will be balanced by holdings in high-yielding stocks from outside the FTSE 350.
T1ps says that there are many good cash generative smaller companies that pay a high dividend because they are unfashionable and overlooked. However, potential investors in this fund should be prepared to wait for the growth element of each holding to materialise, as it could be some time before a firm’s shares are re-rated or it becomes the subject of a merger or acquisition.