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Downing Strategic Micro-Cap delivers third consecutive year of outperformance


DSM Chairman, Hugh Aldous, shares his reflections on the Company’s performance over the full year to the end of February. Despite the challenging macro backdrop, DSM demonstrated resilience, comfortably outperforming the AIM and FTSE Small Cap indices for the third successive year.

Looking back over 2022,it was a difficult year for almost all markets and portfolios, marked by steep declines for small-cap and micro-cap investing entities. Nevertheless, even though ending 8.7% down over the year, DSM outperformed the AIM index comfortably and has eventually beaten the FTSE Small Cap. That follows last year's performance when the company’s NAV was up 5.3% compared to the FTSE AIM All-Share’s decline of 21%. 2023 is proving almost impossible to assess as central banks tussle to bring down inflation, the IMF sees no growth at all for the UK and inflation continues to dictate interest rates. Markets have been largely inactive and depressed. The worst was through the summer and autumn of last year and companies had to be resilient and determinedly managed, not highly indebted, to cope with that economic environment.

Your company’s portfolio demonstrated that resilience and during 2023 to date DSM has been a good performer amongst micro-cap investment trusts with a 10% increase in NAV.


Portfolio performance

Although NAV per share declined in the financial year, from 85.43p to 77.99p, that better than most investment company comparators. More to the point, the constituents of the portfolio remained largely strong and adequately financed. Its constituent companies have generally sorted themselves. There has already been successful M&A activity within the portfolio since the year end. The Manager’s Report will take you through the prospect of further advantageous realisations.

Something like half of DSM’s portfolio is ripe to be acquired or otherwise realised. DSM has consistently pointed out that its portfolio is at carried values that are something like 40% to 50% below market analysts’ consensus values. In the first quarter of this year, one investment has been bought by Macquarie at a premium of over 70% to its carrying value. We will just have to see what interest develops in the rest. 


In the past, we have usually paid a small dividend in line with the Investment Trust regulations (0.3p per share in 2022) when we have generated a revenue surplus for the year. This year we have taken a cautious view on loan stock interest, deferring recognition until it is paid.  As a result, there is no revenue surplus showing on the Income Statement and consequently there will be no small year-end dividend. 

Shareholders’ interests

Your board is well aware of the share price discount and consistently tries to ameliorate unnecessary volatility in the share price. We have been constrained in efforts from time to time: once, at the back end of last year, when inside information stopped any discount management, and once at the beginning of this year when an unusual technical issue did the same. So, the discount has rather wandered between 20% and 15%. We have been modestly buying back of late whenever markets are stable. At the time of writing, the discount is 15.9%.

On 9 January 2023 we re-iterated our cash redemption offer in a regulatory announcement. Before issuing that announcement, we talked to all our largest shareholders. Our published intentions met their interests. That January announcement discusses the board’s steps ahead including its policy on discount management, the cash redemption offer and the varied outcomes that might follow from a strategic review if the cash offer is widely taken up. Those assertions make for an attractive potential return in these worrisome times. 

Even so, communicating with the wider body of shareholders and potential investors is not easy. Commentators and analysts do not have the time. Reports and accounts are too long (ours is 100-odd pages). Thousands of shareholdings are held in nominee names via platforms. To try to overcome some of those problems, we embarked on an extensive exercise using s793 of the Companies Act to penetrate the holdings in nominees. We received a response of about 10% and we were told that was good! Our managers ran several webinars and to the latest we received a couple of dozen responses, all of which were supportive and positive. I continue to contact the larger shareholders two or three times a year, which is apparently unusual for chairmen.

Provision of information to shareholders

The board and a team at Downing have been developing a new DSM website from which shareholders and potential investors can navigate across sources of information set out for them including investor letters, analysts’ reports, DSM’s performance and its portfolio. The link to the new website is:

We press on to try to obtain more interested parties to register their interest so we can keep you up to date with our communications.


Our own governance

As in all years, the board undertakes an extensive appraisal of itself and the managers (and they of us, as a matter of interest) which is a process of continuous improvement that works well.

More widely

High quality corporate governance and clarity of objectives support shareholder value through constructively critical executive oversight. Boards of directors are not there simply to feel comfortable. Directors are the critically important stewards of their companies. The buck does stop with them, whether that is the board of a large bank or the vitally important board steering and monitoring a small AIM business. The failings of boards are all too tiresome as well as economically damaging. A DSM principle is to be constructively determined in aiming for effective boards.

Forward view

Across a range of indicators, financial conditions are now very tight. That suggests more economic difficulties for the US and Europe and continuing concern amongst investors about their cash holdings and investments. If in addition UK inflation becomes entrenched, the cost to the economy and society of dealing with that will be tough. Unwinding will expose the consequences of past lack of investment and just how many things are now going to be more difficult if money is no longer cheap.   

Your board can take a view on whether businesses have clear objectives whilst the managers assess management, direction, and balance sheets. Most of DSM’s portfolio has proved to be resilient and comparatively cheap. Much of its management has been assessed and improved. As to the UK, slowly, all too slowly, its leadership is, maybe, learning; learning politically, in its establishment and its governance that poor management leads to poor returns and comparative decline whilst, sadly, its leaders tackle stagnation and inflation through a playbook of responses. In the meantime, your portfolio should do much better than that, as it has done in recent years. It is a portfolio for the future of the more determined UK.

As to DSM’s managers – the team are one of the few who have real determination to change, improve and inject catalytic transformation into their investments. DSM’s portfolio is a portfolio for change and for a hopefully recovering country.

Thanks go to the board and managers through a difficult year for markets but another year of progress for DSM.


The AGM will be at 12:00 pm on 6 July 2023 at Downing’s office at St Magnus House, 3 Lower Thames Street, London EC3M 6HD. We ask shareholders intending to attend to register by email to so that the Registrars have your details. The notice of the AGM is set out on page 98 of this report with notes in respect of special business to be proposed at the meeting. We encourage shareholders to submit their proxy votes in advance of the deadline of 4 July 2023.

In addition to the AGM, the Company is also planning to issue a circular shortly to complete the resolution of the technical matter regarding the company’s share capital which was addressed earlier in the year.

Hugh Aldous


5 May 2023

Hugh Aldous, Chairman
Hugh Aldous, Chairman

The Chairman’s Statement was originally published in the DSM Report & Accounts for the full year to 28 February 2023. View the full accounts here.

Risk warnings

Opinions expressed represent the views of the Non-Executive Chairman at the time of publication, are subject to change, and should not be interpreted as investment advice. Please note that past performance is not a reliable indicator of future results. Capital is at risk.


This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Downing does not offer investment or tax advice or make recommendations regarding investments. This document contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Downing LLP as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. Downing is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.