Why Rights and Issues Investment Trust fund managers added Marshalls to their portfolio

The Rights and Issues Investment Trust is a high conviction low turnover portfolio of UK small caps and AIM shares. The trust has a long track record of producing market-beating returns for investors willing to accept a higher degree of risk over medium to longer-term horizons.

Marshalls was recently added to the portfolio and provided a level of diversification away from technology shares that dominate the trust’s top ten holdings.

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The addition of Marshalls is a demonstration of the management’s willingness to amend their approach to suit market conditions. As well as Marshalls’ selection providing differentiation in terms of sector, Marshalls is a value play amid a portfolio comprised predominantly of growth stocks.

The company is a market leader in the supply of building materials, in particular tiles and blocks used in groundworks.

It is difficult to imagine Marshall’s finding its way into the Rights and Issues portfolio just a year ago.

However, the decline in UK small caps has presented an opportunity in Marshalls for the eventual recovery in the UK small cap space, as well as the wider economy. 

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Marshalls serves domestic residential building customers, the homebuilding sector and larger infrastructure projects. It is an industry adversely impacted by the macroeconomic environment and while the company’s earnings have suffered, this has been outpaced by the contraction of their earnings multiple.

Marshalls half-year 2023 group sales fell 17% compared to 2022 as volumes suffered in the current environment. Shares have declined from above 800p in 2021 to trade just above 200p at the time of writing.

At the recent UK Investor Magazine Investment Trust Conference, Manager Dan Nickols explained Marshalls’ current Price-to-Earnings ratio provides the chance for the company’s share price to move back to historical averages.

Indeed, Nickols said it wasn’t ‘fanciful’ to expect the Marshalls shares price to double from current levels if profit recovered to prior levels and it was to return to valuation averages over the coming years.

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