Bet on small caps is paying off for Walls

Fund of investment trusts manager Peter Walls has made a big bet on UK smaller companies within his Unicorn Mastertrust fund.

His £25m fund has strongly outperformed its index over the past three years, delivering a 57.1 per cent return, while the IA Flexible Investments sector has returned just 31.6 per cent in the same period.

Mr Walls puts the outperformance down to his overweight to smaller companies, which he doubled down on during the “wobble” the asset class experienced during the lead up to the UK general election.

Article continues after advert

“We’ve seen a re-rating of small caps in the UK. They are coming from quite heavily discounted levels compared to the FTSE 100 and FTSE 250 [indices], but we are seeing a turnaround,” he said.

During the period of uncertainty that preceded the UK general election, Mr Walls took the opportunity to buy the £199m Montanaro UK Smaller Companies Investment Trust. He noted the fund had “a sticky period of performance, but has begun to turn around”.

Earlier this year he also bought into the £136m Strategic Equity Capital trust. Mr Walls said the trust “quite often sits on the top of rankings”, but he took the opportunity to buy in when he saw its discount to net asset value had widened to more than 10 per cent.

The discount on the GVQ-managed trust has already turned around and it is now up to a 10 per cent premium.

The other new investments Mr Walls has bought into so far this year are two trusts that have just listed on the London Stock Exchange: Apax Global Alpha, an investment trust that targets private equity and derived investments, and Gabelli Value Plus+, which invests in US companies.

Mr Walls said he normally did not like investing in initial public offerings, but said these two were exceptions.

The Apax trust came to the market at a 13 per cent discount, while the Gabelli trust was run by a US team he had long admired.

Elsewhere, the manager said he was disappointed with the performance of the Aberdeen Latin American Income trust.

The vehicle has suffered due to selloffs in the Brazilian market and is doing worse than several of its peers. It has lost 30.9 per cent in the past three years, while the average trust in the AIC Latin America sector has lost 27.1 per cent over the same period, according to data from FE Analytics.