The investment area of small-caps and the value approach to stock-picking hasn't been easy. We talk to a listed trust with the relatively unusual distinction of its shares trading – for a while – at a premium to underlying value, rather than a discount.

Away from immediate UK political dramas, one stated goal from many policymakers, including finance minister Rachel Reeves, is to encourage faster economic growth. Allied to that is a stated desire to boost London’s listings regime and give entrepreneurs more ways to realise their goals.

It has been tough for small- and medium-sized UK businesses in recent years. There is relatively low liquidity, patchy analyst coverage – not helped by the MiFID II investor rule regulations of almost a decade ago – and a preference in some quarters to stay private rather than endure the regulatory costs of listing.

But where certain opportunities appear to go unseen and unheeded, those with senses sharp enough to spot the diamonds in the rough can generate returns. This is the position of Richard Staveley, lead fund manager at Rockwood Strategic. He is a partner at Harwood Capital Management.

“We are value investors…We are also activists. We tend to be behind the scenes in a professional and constructive sense,” Staveley said. 

The trust invests in UK small caps; it is an investment trust which, unusually, trades almost at par with its net asset value; it has been at a premium recently therefore was able to triple its size by issuing shares into investor demand in recent years. By contrast, about 10 per cent of trusts fetch a premium on the share price vs NAV, as figures from the Association of Investment Companies (AIC) show. 

The trust targets funds with a market cap of £250 million ($338 million) or below; there are only 24 holdings in the trust, he told WealthBriefing in a call. “We are targeting stocks with an investment thesis where there is at least 100 per cent upside…we expect that to happen over a three to five-year holding period.”

The Rockwood Strategic website spells out why the sector it plays in can deliver long-term performance: Structural inefficiency; additional discounts in public markets for lower liquidity; the ability to reduce risks by due diligence; using relationships and networks to find hidden value and drive change; and a significant number of under-researched companies.

The trust moved from the AIM market to the LSE’s main market in 2022 and has grown from £38 million in assets to almost £170 million. The trust has a capacity limit, given the nature of its strategy, of about £300 million. Since the start of 2026, total return in net asset value terms is 5.13 per cent; over 12 years to date, it is 20.65 per cent, as of 12 May, Rockwood Strategic told this publication. 

Unlike some fund managers that have a range of mandates, Staveley said he focuses only on the trust and its portfolio companies and potential companies, spending all his time on company research. Staveley trained as a chartered accountant and worked in a variety of firms, including Societe Generale Asset Management, River & Mercantile, Gresham House and Majedie AM. In all, he has more than 25 years’ experience of equity investment and fund management and trained as a chartered accountant at PricewaterhouseCoopers.

Rebound potential
Data from Harwood on long-term performance characteristics of small-caps stocks shows that when there are draw-downs, small-caps have shown substantial rebounds. Data also points to historically cheap valuations for small caps in the UK, he said.

“There’s definitely no hubris in the UK stock market now,” Staveley continued. 

Small-cap liquidity has suffered in recent times from a regulation-induced squeeze on sell-side research, reduction in press coverage and large asset managers focusing on much bigger listed stocks, he said. 

If a large turnaround in performance of firms occurs, Rockwood's trust team can consider the potential of selling to private equity, but in recent years a range of the strategies holdings have been taken over by both domestic and overseas trade buyers (such as Treatt, Van Elle, Onthemarket.com, National World, Crestchic).

Investment trusts deserve more attention
At a time when there’s so much talk about the need to give investors more access to private market funds, with “evergreen,” or “semi-liquid” entry points, it does seem odd that a tried and tested model – investment trusts – which has been around for more than a century and a half, tends not to get much media attention outside specialist channels. What’s the problem?

“There’s a relative lack of marketing firepower in the investment trust sector, when put against the open-ended funds. However, if you explain the value of investment trusts for illiquid assets, like UK small cap equities, everyone gets it,” Staveley said.