Downing Strategic Micro-Cap (DSM)
01/11/2021
Results analysis from Kepler Trust Intelligence
Downing Strategic Micro-Cap (DSM) has reported its interim results for the six months to 31 August 2021, showing a continuation of the strong bounce-back from the pandemic induced market falls of 2020. The NAV per share on 31 August 2021 was 93.74p, an increase of 15.5% on the NAV per share on 28 February 2021 (81.16p) and an increase of 39.2% on the prior interim NAV per share of 31 August 2020 (67.36p).
The managers have been "unusually bullish" on the prospects of DSM since the start of 2021 (see investor letters on the DSM website.) These letters illustrate the team's progressive confidence in the portfolio, with phrases such as 'coiled spring' and 'best ever prospects for the portfolio' conveying some of their enthusiasm for the companies that DSM holds. The interims illustrate that the portfolio has made good progress and prospects improve.
Kepler View
DSM's NAV has declined modestly from the interim date, along with the market, down from 93.74p to 90.13p as at end October (-3.8%). The discount remains in low double digits (12% at the time of writing).
Underpinning DSM's strategy is the expectation by the managers that the prospects for their underlying portfolio companies are underappreciated by the market. It is this that gives them the opportunity to purchase shares at attractive valuations at the outset.
Within the portfolio there is a balance of very different investment drivers, but until the wider market (or an acquiror in an M&A transaction) better appreciates these companies' prospects, investors need to have patience until an opportunity presents itself for full value to be realised. As it stands, DSM offers a highly differentiated exposure to small companies which are unlikely to be found in other fund portfolios.
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