Strategic Equity Capital – Quality small cap focus – Strategic Equity Capital (SEC’s) managers believe the current portfolio consists of very high quality smaller companies. The high cash balances that built up in 2016, on the back of events such as the e2v technologies takeover, have, largely, been redeployed. Cash drag and the fund’s focus have held back returns over the past year (see page 12). However, investment activity (detailed on page 10) has generated encouraging initial returns. Longer term, the detailed private equity derived process, focus on high quality small companies and positioning of holdings in long term structural growth areas provide the managers with confidence for the future.

The team acquired a significant number of shares earlier in the year and a programme of share buy-backs, operating since April 2017, appears to have stabilised the discount.

Focused UK small companies portfolio

SEC aims to achieve absolute returns over a medium-term period, principally through capital growth. SEC is managed with a focused portfolio of investments selected on the same basis that a private equity investor would use to appraise its investments.

Fund profile

Launched in 2005, Strategic Equity Capital (SEC) is a London listed investment trust that invests in a concentrated portfolio of predominantly UK-listed equities (typically 15-20 holdings), targeting an internal rate of return (IRR) of at least 15% a year across the cycle.

SEC is managed by GVQ Investment Management (GVQIM or the managers), a subsidiary of RIT Capital Partners. More information on the manager is included on page 16 of the note. GVQIM applies private equity techniques towards evaluating listed companies and seeks to build a portfolio of stocks that it believes are undervalued and would benefit from strategic, operational or management initiatives. The investment process is more fully described on page 5 of the note.

Before making any investment, GVQIM carries out significant in-house research, aided by a panel of advisers (the Industry Advisory Panel – see page 17 of the note) and utilising the knowledge and expertise of an extensive network of industrialists and private equity investors.

The investment managers’ interests are aligned with shareholders in that GVQIM employees own around 3% of the trust and RIT Capital Partners has a 14% stake. The team has also been adding to its position in recent times, buying around 900,000 shares in the first three months of 2017 and more since.

SEC : Strategic Equity Capital – Quality small cap focus