Following a period of poor performance (NAV down 45.1% over the last 18 months versus the index’s 22%), we are constructive on the outlook. Over the last seven years the fund has outperformed (6.2%pa versus 4.6%pa) the UK small cap companies index. The NAV performance, driven by a de-rating of quality-growth stocks, has been compounded (for shareholders) by the de-rating of the fund to a 17% discount. Our constructive outlook reflects a combination of the severity of the market’s de-rating (from 22x p/e to c10x P/E) combined with the continued growth of the fund’s investees (>14%pa earnings growth over the last five years). In our opinion, the key to a performance rebound is stability. In a stable environment and given the de-rating, the sales/earnings growth exhibited by RMMC’s investees should translate into NAV performance. As the performance rebuilds, we expect the fund’s discount to narrow (to high single digits, c11% additional upside) as investors anticipate a mandatory redemption at NAV.
