Fees  

Trust cuts management fee as discount widens

Trust cuts management fee as discount widens
 Credit: Dominic Lipinski

The board of the Miton UK Microcap trust has cut the annual management fee for the portfolio after it continued to trade at a hefty discount.

In a trading update published today (September 3), the board said it had agreed with Premier Miton, the company’s manager, to reduce the fee from 1 per cent a year to 0.9 per cent of market capitalisation.

The board said: “While the trust’s portfolio has appreciated this year, its share price has not risen as rapidly.

“The trust’s share price has been at an average discount of approximately 3 per cent since IPO, but...it is well below that level at present.”

Miton UK Microcap is currently trading at a discount — when the shares in the trust are worth less than the underlying assets — of 14 per cent.

In the year before the pandemic struck, the trust had been fluctuating between roughly a 1 per cent and 6 per cent discount.

The trust’s board added: “[We are] conscious of the company’s ongoing charges and the discount the company’s currently trade at.

“As a result, [we have] agreed...to reduce the annual management fee.”

The fees will continue to be calculated on a monthly basis while all other provisions of the management agreement remained unchanged.

The trust has been trading at such a discount despite a relatively strong performance in the past year.

It has returned 15 per cent in share price terms in the past 12 months compared to an average loss of 7.4 per cent in the UK Smaller Companies AIC sector.

The trust’s Nav total return is 26 per cent for the past year compared with its peers’ average loss of 5.4 per cent.

In today’s update, the board said the trust’s strategy was to principally invest in microcap UK quoted companies which were less reliant on the growth of the UK economy.

It also allowed the managers to select individual stocks that had potential to “deliver premium returns”.

The trust had also boosted returns by buying a FTSE 100 put option in March. The board said the cash received from the option funded additional investments when valuations were low so enhanced the trust’s subsequent recovery.

Put options are an insurance tool which give managers the right to sell their stocks at a specified price (within an agreed timeframe) so they can protect part of a portfolio against falling markets.

When using put options, the manager can protect the same proportion of their portfolio for less money than when using a physical defensive asset such as gold, meaning the portfolio has more cash left over.

The downside is that unlike a physical asset, the cash spent on a put option is essentially worthless if markets remain stable or go up.

imogen.tew@ft.com

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