Montanaro UK Smallers kept ‘busy’ with portfolio reshuffle

Montanaro UK Smaller Companies has had an active six months, making several new purchases, as well as batting off Saba for the second time.

Charles Montanaro says his UK smaller companies trust has been ‘busy’ over the six months to the end of September, initiating six new positions.

Industrials remain the largest weighting in Montanaro UK Smaller Companies (MTU ), accounting for around 25% of net assets as of October. Four new holdings were added in this area during the period: Hill & Smith, Cohort, Volution Group and FRP Advisory.

The trust previously held Hill & Smith almost twenty years ago, and Montanaro said the business − a portfolio of specialist infrastructure companies ‘with a decentralised culture and exposure to the structural upgrading of power networks particularly in the United States’ − remains ‘exactly the sort of quiet compounder’ he likes.

The manager also dwelt on Reading-based defence and aerospace group Cohort, which has been steadily building highly specialised capabilities in electronic warfare and naval communications.

 ‘At a time when global defence budgets are rising, particularly in the maritime domain, we believe it is well placed,’ he said.

Two consumer-facing names, AG Barr and Mortgage Advice Bureau, along with artificial intelligence software specialist Pinewood.AI, were also introduced. Montanaro described each as ‘a leader in its field, run by management teams we rate highly, with the capacity to grow over many years.’

‘These are not speculative ideas. They are the type of dependable businesses that we believe can compound steadily over time,’ he said.

Funding the new purchases, the trust exited positions in Marshalls, Liontrust Asset Management and SThree, citing growth concerns across the board.

Performance over the period was underwhelming, with net asset value (NAV) total returns of 8.4% falling short of the 17.7% for the Numis Smaller Companies index. The trust’s discount widened to 11.2% from 8.4%, while the share price total return climbed 5.4%.

The trust has also been dealing with renewed pressure from activist investor Saba Capital, which has twice built a notable position this year.

Earlier this month, MTU bought back 6.4m shares, following a much larger 20m share repurchase in March, which successfully pushed the New York hedge fund off the register.

The ongoing buybacks have reduced the trust’s scale, leaving it with a market capitalisation of around £115m.