Levelling up

Following his landslide election victory in December, Boris Johnson announced plans for significant government spending in regions around the UK including the North, the Midlands and Wales. The plans, which are being considered ahead of the upcoming Budget, aim to reduce inequality and boost jobs and growth.

Ahead of the Budget on 11 March, the Association of Investment Companies (AIC) has spoken to investment company managers about the regional businesses they are backing, the benefits these companies bring to their local areas and the advantages of investing outside London and the South East.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), said: “In this Budget we are expecting greater detail on the proposals to support investment in local areas and economies. The investment company industry offers a range of sectors including UK Smaller Companies and VCTs which can provide investors with access to dynamic regional businesses. This investment delivers growth and social benefits to local economies, where development is most needed.”

Investing outside London and the South East

Laura Foll, Co-Manager of Lowland Investment Company, said: “We own many excellent businesses based outside London including Epwin which is based in Telford, Churchill China based in Stoke on Trent, and Anexo based in Liverpool, to name a few. Our investment process is based on meeting the management and, if we think it will be helpful, visiting companies in situ. Smaller companies based outside London and the South East are often less well known but we believe this presents an opportunity to find good businesses on attractive valuations that meet our investment criteria and may potentially be overlooked.”

Harry Nimmo, Portfolio Manager of Standard Life UK Smaller Companies Trust, said: “Smaller companies are located throughout the UK and, as a manager, geography is irrelevant to me. My focus is on identifying and investing in good quality companies wherever they’re based. One sector that is a great example of this is video gaming. Companies in this space include Team 17, who are based in Wakefield and Nottingham, and Sumo Digital whose HQ is near Sheffield. These businesses were founded in the region and this allows them to access excellent talent, particularly graduates from Sheffield Hallam University which has a well-regarded degree in game design and development.

“A big attraction of working and living outside of London is lower living costs. This combined with an increasing desire for the right work-life balance means talent is no longer moving to London. Smaller companies, in particular, can capitalise on this.

“We’ve seen more small-cap opportunities in Manchester. Companies with a heavy presence there include Autotrader, On The Beach and Boohoo. Of particular benefit to these businesses is the fantastic pool of talent in the area, once again aided by the universities nearby. Manchester is an excellent place to live and has a lot to offer. HS2 and further infrastructure developments could be helpful in making these regions even more accessible.”

Judith MacKenzie, Manager of Downing Strategic Micro-Cap Investment Trust, said: “We don’t actively look to invest inside or outside of London and several companies in the Downing Strategic Micro-Cap Investment Trust have their HQs away from the capital. Our investment process allows us to unearth companies, like Real Good Food in Liverpool, up and down the country that are not on the radar of most fund managers. They tend not to attract as much attention from investors and they attract very good, skilled and loyal workforces.”

Gervais Williams, Portfolio Manager of Miton UK MicroCap Trust, said: “Local champions across all the regions of the UK can be listed, not only offering a route to raise additional risk capital to fund additional employment, local growth and extra tax take, but also offering valuable diversification benefits to savers, at a time when this is more limited elsewhere.”
 

How could proposed government spending affect smaller UK businesses?

Judith MacKenzie, Manager of Downing Strategic Micro-Cap Investment Trust, said: “We welcome any initiatives that assist smaller companies to grow. A development strategy that covers a wide range of factors that positively help the performance of local businesses is a real positive for the sector. R&D tax credits and regional matched funding really helps promote job creation in areas outside London.”

Laura Foll, Co-Manager of Lowland Investment Company, said: “Some of the companies we hold will benefit from the process of regional economic development. For example we hold contractors, such as Balfour Beatty, that will benefit from infrastructure spending and another company called Hill & Smith which benefits from road building as it makes crash barriers and road signs, as well as carrying out rail station extensions and improvements. Additionally, other companies we hold should benefit from the outcome of regional economic development. For instance, better connected towns and cities mean you can recruit people from a wider area, while we’ve seen businesses moving out of the South East to towns and cities in the North that often offer much better value in terms of rents and total property costs.”
 

How are your regional investments helping their local areas?           

Gervais Williams, Portfolio Manager of Miton UK MicroCap Trust, said: “Kromek has invested progressively over recent years, and is now being recognised as one of the global leaders in the critical components for medical imaging, or radiation security. Importantly, as this capital expenditure matures, the company won’t just deliver attractive returns for savers, but it has also built skilled employment in Durham from two employees initially, to over 100 now. Alongside that it has boosted domestic growth in the North of England, and in time it will deliver additional tax take for the government as well. In short, well targeted investment like this is socially useful. It delivers for savers as well as those in and around the Durham area.”

Judith MacKenzie, Manager of Downing Strategic Micro-Cap Investment Trust, said: “Real Good Food has a long association with Liverpool and its Renshaw factory has been a major employer in the city for many years. It has a workforce of around 350 people across four locations. The company offers employment opportunities in many aspects of food processing and manufacturing, logistics and distribution, technical, new product development, commercial and finance. The development activities of the company serve as a global hub for food technologists and scientists, bakers and other creatives working in the food industry.”

Laura Foll, Co-Manager of Lowland Investment Company, said: “One of the holdings in Lowland Investment Company’s portfolio is Palace Capital, a regional property owner in the UK that invests in office, leisure and industrial properties in cities such as York, Newcastle and Manchester. The largest development they are currently undertaking is a project near the railway station in York which will be a mixed-use residential and office space due to be complete in 2021. York has had little new development within the city centre, and this brings high quality residential space and office space, which has been in high demand.”

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Notes

1. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs. The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 363 members and the industry has total assets of approximately £201 billion.
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