Since being appointed investment adviser to Rights and Issues, have you changed the way it is managed?
Our predecessor, Simon Knott, had a very successful 39-year tenure. We plan to retain the core principles that have made Rights and Issues so successful over the last four decades. Our approach is to retain the best of the heritage of the Trust, and combine it with the benefits of a large, well-resourced investment team.

Jupiter’s UK small and mid-cap equities team has nine investment professionals as well as a dedicated Environmental, Social & Governance (ESG) Investment Director. We believe we are one of the largest and best-resourced small cap teams in the UK market. In a part of the market that is often under-researched by both buy- and sell-side analysts, this is a key differentiator.

It means a step-change in the resource available to Rights and Issues. Jupiter offers a market-leading investment platform, with dedicated teams of dealers, risk experts, data scientists and all the infrastructure you would expert of a leading asset management company. As well as the Trust’s own board, this means Rights and Issues will also benefit from the oversight structures Jupiter has in place for all its investment products.

We are combining that with the Trust’s strong heritage. We think this has the potential to offer long-term investors something different and compelling.
You say the best of the heritage will be retained – can you give an example?
A concentrated and high-conviction approach has been a hallmark of Rights and Issues over the years, and we plan to continue in that tradition. We expect the portfolio to remain concentrated, in the region of 20 to 30 stocks.

The closed-ended structure of an investment trust brings the advantage of not having, as in an open-ended fund, daily flows of investor money. This means the Trust can cope with greater volatility and lower liquidity in the shares it holds. It allows us to bring greater focus to bear. We can concentrate on a smaller number of our highest conviction ideas.

We will continue to invest in good companies that we can hold for the long term, aiming to generate value for shareholders over time – we will not be looking for short-term trading opportunities.

The Trust will not use leverage (such as for example borrowing money, or using derivatives) and will aim to provide a steady and, hopefully, growing dividend stream. While we are external managers, the Trust retains its independent board to provide strong oversight. Simon Knott sits on the board and will no doubt keep a very close eye on our stewardship of his legacy.
OK, so what are you planning to change?
Over time, we are planning to change the balance of the portfolio. When we took over as managers in October 2022, the top 10 holdings accounted for about 84% of its assets. As of the end of January 2023, that was down to around 71%, and we expect it to come down somewhat further.

At the other end of the portfolio, we are keen to make sure that all positions are of a size that can be meaningful to performance. We believe very strongly in responsible ownership, so are likely to spend as much time engaging with a company that is a tiny holding as with a large one. With a tiny holding, any improvement we help to bring about through engagement does not contribute much to overall Trust performance – simply because that holding is only a small portion of the portfolio. We have therefore reduced the number of holdings worth less than 1% of the portfolio from nine to four and expect to make further progress.
Apart from the overall shape of the portfolio, what other changes can we expect?
We are in the process of focusing our holdings on the part of the market where we believe we have an edge – the small and mid-cap companies we research as a team. For this reason, we have begun the process of reducing holdings in stocks that are too large in market cap terms for this kind of mandate.

At the smaller end, we are unlikely to hold very small companies in the long term. The reason for this is that it is difficult in practice to hold them in sufficient size to make the positions meaningful to overall Trust performance. Again, we have started to make some progress in this respect and now have only two holdings with a market cap below £50m, down from four when we took over management.

The final aspect of the portfolio we are developing is its balance in terms of sector and style exposures. The Trust has traditionally been run with a distinct skew towards certain sectors – for example industrial and engineering business. We plan to broaden its exposure by adding investments in sectors which have tended to be under-represented, such as financial services. As well as helping to diversify the portfolio, this is could help ensure that our shareholders benefit from the sector-specific expertise we have in the team, by capturing the best ideas we have in each area.
Finally, do you have any message for current shareholders?

We plan to retain the core principles that have made Rights and Issues so successful over the last four decades under Simon Knott. We are taking a very considered approach to evolving the portfolio, and indeed we expect to retain a significant number of the holdings we inherited in October.

 

We are honoured to be appointed to what in our view is one of the most successful and venerable Investment Trusts in the UK small cap sector. We think we have an exciting plan to combine the best of the Trust’s heritage with the extensive resources we bring as a team and company to offer investors something that is differentiated from our peers and presents a compelling investment opportunity for existing and potential shareholders.

 

We are excited to be taking on the Trust at this time. On a medium-term view it does appear that the risk of a deep or prolonged recession has reduced somewhat. Progress on a long-term trade deal for Northern Ireland, and a generally more pragmatic approach from the UK government, suggests that we may see a period of relative calm which should allow UK equities to close up some of their valuation discount to global peers. Within the UK Mid and Small cap opportunity set, we do not currently see market leadership emanating from either the growth or value theme1 on a sustained basis, and therefore we plan to shape the portfolio over time such that it is balanced between both.

1 The growth theme means investment in companies that have relatively faster-growing revenues. The value theme means investment in companies that have relatively cheaper share prices in relation to their earnings or balance sheets.
The principal risks are as follows
  • Market risk – the portfolio will be invested predominantly in listed equities and therefore will be exposed to a range of market risks including economic conditions, market disruptions, accuracy of company information, global health crises, competition and volatility.
  • Idiosyncratic risk – the portfolio will be concentrated and therefore will be exposed to the idiosyncratic risks of each underlying investment
    The portfolio will be exposed to liquidity risk given the focus on smaller companies.
    The portfolio will be exposed to interest rate risk both as a consequence of any financial leverage within the underlying investments and as a consequence of the impact of interest rates on the market valuation of companies.
  • Currency exposure – The portfolio may invest in companies whose revenues, profits and / or balance sheets may have exposure to foreign currencies.
  • New issues – The AIFM on behalf of the Company may invest in new issues which can pose additional risks related to transient illiquidity, lack of trading history and concentration of ownership.
  • Corporate management and financial reporting risk – The AIFM relies on financial information made available by the companies in which it invests. This information may not be independently verified by the AIFM. Corporate mismanagement, fraud and accounting irregularities relating to the underlying investments may result in material losses.

The value of active minds: independent thinking

A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.

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