Shareholders of the Odyssean investment fund have had a pleasant, if bumpy, ride since the fund was launched six years ago.
Investors since the beginning have seen gains of 59 percent. To put this into perspective, the average UK smaller company trust has generated a return of 23 per cent over the same period, while the FTSE All-Share index has returned 36 per cent.
However, if the trustees of the trust are correct in reading the runes, greater profits could be made in the years to come.
“We are confident of achieving annual returns of 15 per cent on each of the holdings we now hold in the trust over the next three to five years,” says Stuart Widdowson, who along with Ed Wielechowski runs the £195m exchange-traded fund . .
Their boldness is based on the prospect of a better economic environment, lower inflation and future interest rate cuts. It is also based on an expected revaluation of the sector Odyssean is targeting – the UK’s smaller businesses.
These factors, he says, could trigger a period of sustained performance from these smaller companies. Furthermore, Widdowson is confident that the trust’s portfolio is well positioned to benefit.
Managers are stock pickers who support their judgment. If they like a stock, they build a great position. As a result, the trust has only 16 holdings. His most important position is in the chemical company Elementis, which some believe is not realizing its full potential.
This reflects the managers’ approach: buying companies when they are in disgrace and then waiting for them to improve.
“We look for gems we don’t like,” Widdowson says, “and we hope they turn into polished diamonds.”
This transition may result from improved profit margins, corporate restructuring, or new revenue-generating products. It can also come from being bought by a rival (public or private).
It is an investment approach that requires meticulous research and great discipline, because investments can take time to demonstrate their value.
“If you look at our recent figures, the trust had a great year in 2021 – the share price was up almost 29 per cent,” says Widdowson. ‘Calendar year 2022 was also good, with the share price rising 5 percent, but last year was difficult, with the stock falling more than 9 percent. But that’s how it works. Our investment style can fall out of favor and suddenly come back into fashion and our shareholders benefit.’
Widdowson says the past year has allowed him and Wielechowski to build positions in favorably priced companies such as marine services provider James Fisher; Gooch & Housego, designer and manufacturer of optics and photonics; and Xaar, which produces inkjet technology for industrial printers.
Trust that they will turn out to be stellar investments. Over the past month, they all recorded positive share price gains.
In addition to the investment experience of the trustees, the trust benefits from a panel of industry experts who provide advice on potential additions to the portfolio.
Two other aspects of the trust should attract investors. First, its shares rarely trade at a discount to the underlying assets, meaning the value of shareholders’ holdings does not decline. And the trustees have skin in the game – the shares – so they have a financial interest in ensuring that the trust works well.
The stock identification code is BFFK7H5 and the ticker OIT. Annual charges amount to 1.45 percent.
