The thesis for RMMC is that micro-cap investing is a higher returning pro-cyclical allocation. When small cap does well, micro-cap growth/quality does very well (and vice versa). The manager’s (George Ensor of River Global) core expected return is for a through-cycle mid-teens return driven entirely by earnings growth and M&A. Over the last five years, the fund has returned c5%pa reflecting a substantial de-rating of small/micro-caps and well below the 12.5% IRR generated from inception. Over the last c20 years, the 10 year capital return from smaller companies has ranged from 5-15%pa. Currently the 10 year annualised return at the low end of this range. Ensor’s current enthusiasm reflects his view that the portfolio is positioned to deliver c12%pa plus driven by earnings growth and multiple expansion. On 11 March, shareholders will be asked to approve its quinquennial continuation resolution, our expectation is for it to be approved. Trading at c12.6% discount, RMMC is trading tighter than its 12 month average (17.5%) reflecting a tightening of the market. In our opinion, as the recent performance (+15% over 3 months) builds and gets reflected in longer term performance metrics the discount will continue narrow.
