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ROCKWOOD STRATEGIC: Boss of trust views his job as 'hunting for truffles in the forest' By Jeff Prestridge Updated: 17:01 EDT, 7 September 2024 e-mail View comments The investment trust Rockwood Strategic is a rare breed: A fund that buys some of the UK’s smallest listed stocks whose shares are bombed out in the expectation of them bouncing back. It’s an investment strategy that requires lots of due diligence and the hand-holding of companies it goes on to own. But it works a treat, judging by the performance numbers.
Over the past one, three and five years, it has delivered total returns of 43, 62 and 167 per cent. To contextualise these figures, the average UK smaller companies trust has recorded respective returns of 20 per cent, a loss of 9 per cent and 46 per cent. Excitingly, manager Richard Staveley believes this run of good investment form can continue, helped in part by the continued compelling valuations of many companies in the sector of the UK stock market he focuses on – and the prospect down the track of lower interest rates (which is good for UK businesses).
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The funds to keep long-term investors fighting fit Share this article Share HOW THIS IS MONEY CAN HELP How to choose the best (and cheapest) stocks and shares Isa He says: ‘I view what I do as hunting for truffles in a big forest. I’m constantly searching for investment gems, businesses that are chronically undervalued and unloved – but where I see there is an opportunity for a big turnaround and a future rerating of the share price.’ Stock selection is key – the trust has only 22 holdings, with the top ten positions accounting for nearly three-quarters of the assets.
Although Staveley says his approach is one honed over 25 years of involvement in fund management, he also draws upon the wisdom of legendary investor Warren Buffett. Read More THE MERCHANTS TRUST: City stalwart finds value in strong firms that have fallen out of favour ‘Buffett opines on the value of running concentrated investment portfolios,’ explains Staveley. ‘He also encourages investors to avoid market hype and take emotion out of the investment equation.
These are all things I do.’ Staveley targets companies that have market capitalisations of less than £250million – often referred to as ‘micro-cap’ stocks. It’s a space of the market that few fund managers are interested in.
He says: ‘It’s an inefficient part of the UK market, which means opportunities abound. 'I find companies that are mispriced by the market, have business problems that they have not yet addressed – and then I encourage them to carry out the things they know they should do to turn themselves around. 'Hopefully, over a three-to-five-year period, the result will be a recovery in profits and a rerating of the shares.
’ The encouragement that Staveley talks about is helped by the fact that in 15 of the holdings, the trust owns more than five per cent of the shares. This allows it to call extraordinary general meetings (EGMs) to push for changes that it believes will improve the fortunes of a company. Recent success stories include a stake it bought in lending platform Funding Circle early this year.
Staveley says: ‘The company listed on the UK stock market six years ago with a £1.5billion valuation. When we bought the shares in January this year, it was £130million and rival fund managers had lost interest in the company.
‘But, encouraged by us, the business has cut costs, sold loss-making operations, made boardroom changes and bought back shares.’ Over the past six months, Funding Circle’s shares have jumped by more than 386 per cent. Staveley, who works for the investment house Harwood Capital, owns shares in Rockwood Strategic, giving him ‘skin in the game’ – so he has a personal interest in delivering stellar returns.
Ongoing annual charges are 1.2 per cent (source: Hargreaves Lansdown) and the trust’s stock market identification code is BRRD5L6. The market ticker is RKW.
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