Industry stalwart Walls, who has over 30 years of experience, says he bought the small cap focused trust in January 2009 because he felt it was better to "be brave when others are fearful". The gamble paid off: the trust’s discount has narrowed from more than 50 per cent when he bought it to 17 per cent today. This, combined with strong capital growth, has translated in to a profit of over five-times his original investment.
"It’s amazing how time flies when you are having fun," he joked.
"One trust that I would highlight that is still in existence is the Strategic Equity Capital IT."
"I bought it back in January 2009. We had just had the collapse of the financial world as we know it, which meant that as prices went down, so discounts widened – and areas such as smaller companies were completely written off."
"Strategic Equity Capital is a smaller companies trust that applies the investment principles of private equity for buying listed equity."
"I bought Strategic Equity Capital on the principle that I didn’t think the world was coming to an end."
"The rating of risk at the time had been completely turned on its head and even if there was a doomsday situation, I think you would still be able to salvage some sort of value from equities."
"The businesses that the trust invested in weren’t terribly geared either, so it wasn’t like they were crying out for capital to pay off debt. The trust wasn’t invested in areas of stress and strain, like consumers and retailers."
"I thought we would survive the market crash, but when markets bomb, small caps are usually the most affected," he added.
According to FE Analytics, since Walls bought Strategic Equity Capital in January 2009 it has returned 633.18 per cent.
Performance of fund vs sector and index since Jan 2009
Source: FE Analytics
Although the trust has no specified benchmark, as a point of reference the FTSE Small Cap index has returned 130.07 per cent over this time.
No trust in the IT UK Smaller Companies sector has returned more over this period. The next best performer – Henderson Smaller Companies IT – has returned less than half as much.
Strategic Equity Capital does not use gearing and has ongoing charges including performance fee of 1.29 per cent.
Although Walls is sceptical that the trust can deliver the returns he has witnessed over the last four years, he says he will continue to hold it for the foreseeable future.
"When I bought Strategic Capital, the trust was trading on a discount of 50 per cent or more," he continued.
"It is still part of the portfolio and it has done pretty well. Recently, the performance relative to other smaller companies hasn’t been as good. However, I do feel that it can still continue to perform and I do still see value."
"It has made us around 5.5-times earnings and the discount has narrowed from 50 per cent when we bought it to 17 per cent, so it has come in a long, long way."
"I think with a bit more merger and acquisition (M&A) activity – which will inevitably happen – the trust will benefit. These companies are just like private investors in many respects, as they buy when prices are up – but there is clearly a correlation between markets and M&A."
As general market conditions have improved, the manager says he is struggling to locate a success story that is comparable to that of Strategic Equity Capital. However, he is optimistic over the prospects of the £241m Hansa Trust, which is currently on a discount of 26 per cent.
"It is a bit more difficult to make a forward prediction because discounts across the board have tightened up," he said.
"One I have bought recently is the Hansa Trust, but I would be very surprised if it could give me 5.5-times earnings over the next four years, like Strategic Equity Capital."
"It hasn’t been spectacular recently, but that is primarily down to the underperformance of its largest holding – Ocean Wilson – which makes up nearly 40 per cent of Hansa’s portfolio. It is a holding company which owns a maritime services company in Brazil."
"Its share price hasn’t been great because there has been quite a lot of risk aversion to Brazil. We got through the BRIC phase where everyone was buying them, but I like the fact that Brazil has been underpinned."
"Valuations are at lower prices and if you believe we have seen a soft landing in China and there will be a sustained demand for raw materials, then Ocean Wilson can do very well."
Over 10 years, the Hansa Trust has returned 322.11 per cent. However, its performance has been a lot weaker in recent times, having returned just 1.27 per cent over five years and losing 10.72 per cent over one year.
Due to the trust's 37.6 per cent weighting in Ocean Wilson, Walls is confident it can deliver on a medium-term view.
"We bought Hansa Trust on a 26 per cent discount, which has hardly moved – but you have to be patient," he explained.
"After buying it, it promptly went down 4.5 per cent, but we are looking towards at least a three-year view."
"If you look at most emerging market trusts they are on a 5 per cent discount, which I don’t think is overly exciting. However, through Hansa Trust I have a good exposure to Brazil."
Hansa Trust is geared at 1 per cent and has an ongoing charges figure (OCF) of 0.87 per cent.
Peter Walls has over 10 years’ experience of running funds in the IMA universe. His £5.7m Unicorn Mastertrust is a top-quartile performer in the IMA Flexible sector over one, three, five and 10 years.
It's up 232.07 per cent over the last decade, beating its sector average by almost 100 percentage points.
Performance of fund versus sector over 10yrs
Source: FE Analytics
The fund requires a minimum investment of £2,500 and has a total expense ratio (TER) of 1.61 per cent.