#1 ONWD’s board and manager see a structural opportunity in listed UK smaller companies

A combination of regulatory changes, such as MiFID II, has increased costs and reduced the quality and availability of research into smaller UK companies. Investors are less willing to hold shares with lower liquidity as the industry has consolidated into larger players and new money has flowed into capitalisation-weighted passive strategies. As a result, ONWD’s manager sees a structural opportunity for active investors to take advantage of mispricing of UK small cap shares in the market.

#2 ONWD takes meaningful stakes to catalyse material potential valuation upside

The company employs a high-conviction strategy, typically acquiring stakes of 5–25% in its investee companies. This fosters close board-level engagement or direct representation, which helps catalyse value through improvements in earnings, valuation multiples and capital allocation. Investee companies are usually below £250m in market capitalisation, with a particular focus on those below £100m, and ONWD aims to invest at a discount to both current valuation and future potential intrinsic value.

#3 ONWD applies a private equity approach to listed companies in its investment process

ONWD’s team invests in companies it understands with clear drivers of future value. Biotech or extractive industries are unlikely to appear in the portfolio, for instance. Investee companies will usually feature asset backing, earnings upside, competitive advantages, strong management or other catalysts, such as the potential for sale. ONWD applies private equity style due diligence with extensive research into the company, its markets, financials and valuation. The manager can be patient with a typical three-to-five-year holding period, making short-term liquidity less important.

#4 The ONWD team is highly experienced and aligned with shareholders

The five investment committee members (including lead manager Laurence Hulse of Dowgate Wealth) are highly experienced with strong track records in the fields of banking, corporate broking, investment management and venture capital. The investment team and committee have more than 160 years of professional experience combined and the manager is aligned with ONWD’s shareholders through performance incentives.

#5 ONWD is fully invested and positioned for a recovery in valuations

ONWD has nearly fully deployed its cash, with the portfolio 90% invested in equities at the end of November 2023. This is at a time when UK equities have been trading at historically wide discounts to other developed markets. Falling inflation and interest rates, rising M&A activity and government initiatives aimed at boosting investment into UK small cap companies are all potential tailwinds for strong investment returns at Onward Opportunities.