- 'Growth capital' funds focused on private companies have staged a fierce comeback this year
- Which names from the sector look unjustly cheap?
The wonders of mean reversion can sometimes cause your worst investment in a given period to later come out on top. That’s arguably the case for investment trusts in the AIC’s Growth Capital sector, which tend to focus on unlisted companies reaching some degree of maturity. Growth Capital is the third-strongest category out of 48 based on its average share price total return over the first 10 months of 2024. Investors should, of course, note that the group ranked 48th in 2022, via an average loss of over 50 per cent.
But there is also an investment rationale behind the recovery, which seems logical enough: these trusts have weathered the worst in terms of interest rate rises, which tend to hurt the valuations on the long-duration assets they own while making it harder for such cash-hungry companies to secure financing. With rates easing off, trusts trading on more attractive valuations, markets looking healthier and portfolio companies hopefully having grown more resilient in tough times, the conditions were in place for a rebound.