The British stock market has underperformed almost every other market in the Western world this year. While the American S&P index of top stocks has actually risen in 2020, our equivalent, the FTSE 100 index, has fallen around 15 per cent and other UK indices are also down – despite a slight bounce since last week’s vaccine news.
Their poor showing can be attributed to several different factors, including concerns about Brexit and, of course, Covid-19, which has hit our economy more harshly than most.
These broad-brush anxieties overlook one fundamental point. Most British businesses are not in a worse state than their overseas peers. Rather, they are undervalued – in other words, they are cheap.
In the race: The Schroders British Opportunities Trust is in talks to back a virtual training business for cyclists
The Schroders British Opportunities Trust intends to take advantage of this situation, while helping UK firms to grow and producing strong returns for investors.
The Trust plans to float on the stock market at the end of this month, raising up to £250million. Shares will cost £1 each and applications will need to be made by November 26. The shares are worth a closer look.
Schroders is one of the best-known investment managers in the UK market with a long track record of delivering results. The firm believes that many businesses have suffered unfairly this year, on the stock market and in the private arena too.
Some companies were growing really fast before the pandemic, they have been hit in recent months but they have the potential to recover fast. Other companies – and there are many of them – have continued to grow through the pandemic should do even better from here on in.
Both types of businesses could benefit from injections of cash – but that is in short supply, particularly for small and medium-sized firms. The British Opportunities Trust hopes to plug that gap, providing quoted and private companies, valued at between £50 million and £2 billion, with fresh equity that they can use to expand and develop.
Managers Rory Bateman and Tim Creed hope to invest in 30 to 50 companies across the UK and across a range of industries, from sectors that have clearly benefited through the pandemic, such as healthcare and technology, to areas that have had a tougher time, such as manufacturing and consumer groups. The Trust is not revealing individual names, as deals have yet to be signed, but discussions are advanced with around 20 businesses, including a business that provides virtual training for cyclists and runners, an aeroplane parts specialist and a security software group.
Bateman and Creed believe this is a once-in-a-generation opportunity to help home-grown British companies fulfil their potential, generating jobs and boosting the economy along the way.
The Trust also intends to promote responsible behaviour among their investments encouraging firms to be good corporate citizens, mindful of climate change and their role in society.
Individual investments will vary between £5million and £15million and around 75 per cent of the portfolio will be devoted to public companies initially because private equity investments take longer to complete. Over time, however, the Trust is expected to be split broadly equally between private and quoted businesses.
Bateman and Creed do not expect to pay dividends, but they are targeting annual growth of 10 per cent once they have achieved a balance of private and quoted investments.
The Trust will have an initial life of seven years, after which investors can choose to wind it down and cash in their shares or ask the managers to keep going.
Either way, the Trust’s structure means that, despite investing in unquoted firms, shareholders will not be exposed to the ‘Woodford effect’ – stuck in a fund and unable to sell their shares. This Trust will be highly liquid at all times, so investors can buy and sell stock as and when they please.
Adding further reassurance, Schroders will invest up to £20million of its own money into the company.
Midas verdict: UK companies are known the world over as being nimble, well-managed and highly innovative. But they need cash to be able to flourish. In recent times, investors have sold out of small and mid-sized firms, leaving many focusing more on survival than growth. Schroders British Opportunities Trust intends to give the best among these a lifeline, helping them to expand and thrive. At £1 a share, the Trust offers shareholders the chance to back British and see their stock increase materially in value too. A patriotic buy.
To be traded on: Main market Ticker: SBO Contact: schroders.com/sbot or 0800 182 2399