North Atlantic plans to splash cash after calling market bottom

North Atlantic Smaller Companies (NAS ) manager Chris Mills is ready to put cash to work, hinting that markets may have hit their nadir.

The £490m portfolio of US and UK smaller companies had a tough 12 months to end of January. The trust is run by Harwood Capital’s chief executive Mills, who  recently floated activist trust Achillies (AIC ) with Robert Naylor.

The net asset value (NAV) of the fund grew 6.5% versus 27.3% by the S&P 500 and a 20% increase in the Russell 2000 index. With the shares up just 1.6% over the year, the discount widened from 31.6% to 34.7%. The board aims to tackle this with the repurchase of 242,000 shares.

Since the end of January, it hasn’t been plain sailing for US markets and for investors in general. US president Donald Trump sent global markets into a tailspin with his trade tariff announcements in early April.

Mills’ previous decision to build up a cash position to £55.8m – with 10% of the portfolio in US treasuries – is now looking prudent. For a number of years he has maintained substantial cash balances, but believes now is the right time to put this cash to work.

‘Given the collapse in the value of UK equities due to mass redemptions and the panic that is spreading across equity markets courtesy of Trump, I believe now is the right time to start to deploy our liquidity into companies where we either understand the financial impact of a potential global trade war or where there is little or no impact,’ he said.

‘Calling a bottom in markets is never easy. We will cautiously deploy our liquid reserves.’

Mills notes that UK domestically-oriented companies have been hit with higher-for-longer interest rates and increases in both national insurance and the minimum wage announced in the Budget.

‘Although there were a large number of takeovers in the year ending January 2025, unlike the previous year, the trust only had limited exposure to these corporate events. This will hopefully change in the coming financial year,’ he explained.

Asset managers disappoint

The fund’s substantial exposure to fund management businesses hit performance over the 12-month period, as these companies were buffeted by difficult market conditions.  

‘Assetco (RVRG) (formerly River Global) performed poorly but the recent announcement that its large holding in Parmenion is being given to shareholders should result in a significant recovery in value over the coming months,’ said Mills, who spearheaded the successful wind-down of Hipgnosis Songs last year alongside Naylor.

Financial advice group Frenkel Topping (FEN) saw shares drop by a quarter of their value after a profit miss and ‘clients became increasingly risk adverse placing funds into lower margin money market funds’.

However, Mills said it still managed to achieve record new fund inflows which bodes well for this year and beyond.

‘Fortunately, our largest investment Polar Capital (POLR) performed well which together with a dividend yield of circa 9% largely compensated for the above challenges,’ he said.

The listed US exposure in the fund is limited to just one stock, Mountain Commerce Bancorp, which Mills said ‘performed well’ over the year, with an 18% rise.

North Atlantic Smaller Companies also invests in unquoted companies, accounting for around 18% of the portfolio. Here, Mills highlighted UK-based Bioscience as the ‘standout performer’. The genomic services and diagnostics group was taken private by Harwood Private Equity in 2023 and Mills said it has enjoyed a 50% increase in value over the last year.

Within the US private equity sleeve, there were a number of takeovers, including Performance Chemicals at an uplift to the January 2024 valuation.

The fund is also in negotiations to sell aviation caterer Jaguar.

The standout performer amongst the fund’s US unlisted investments was Crest Foods, which was acquired early last year. Mills said new long-term contracts will ‘add very materially to future years’ profitability’.

Over the past five years, North Atlantic Smaller Companies’ shares are up 46% which compares to 21.6% by the average trust in the AIC’s global smaller companies. North Atlantic currently trades at a 31% discount to NAV.