Micro-cap Hunter: Doubling Wealth in Obscure UK Stocks

Richard Staveley, manager of the £220 million Rockwood Strategic investment trust, specializes in identifying and investing in UK 'micro-cap' companies. These are businesses with market capitalizations below £250 million, a sector many investment firms have abandoned. Staveley and his assistant Nicholas Mills focus on acquiring these typically struggling public companies with the goal of turning them around over three to five years, aiming to double the trust's investment value.

This contrarian strategy has proven highly successful. Over the last five years, Rockwood Strategic has generated investor returns of 131 percent, vastly outperforming the average UK smaller companies' investment trust, which delivered 32 percent. Staveley attributes this success to going against the market trend, while others focus on popular sectors like AI or cryptocurrencies, he seeks out troubled UK firms with turnaround potential.

The fund holds investments in 25 public companies, with the top ten representing over 60 percent of assets. Staveley categorizes his investments into two types: companies undergoing a turnaround where he observes their transformation, and businesses where Rockwood Strategic actively engages by holding significant stakes (over 5% in 18 companies) to agitate for change. This hands-on approach, as seen with M&C Saatchi, aims to accelerate value realization for shareholders.

One example of Staveley's strategy is the investment in outsourcer Capita, purchased in May 2024 when shares were £2.14. Following a business overhaul, Capita's shares have risen, and Staveley anticipates further growth. Similarly, Rockwood Strategic invested in M&C Saatchi five years ago at approximately 80p per share. Through active engagement, Staveley expects this investment to yield significant value for shareholders. The trust's annual charges are 1.83 percent, considered justified by its stellar performance.