Nimmo, manager of the Standard Life UK Smaller Companies Fund, first bought into the stock on 21 January 2004, he told Portfolio Adviser. And, on that entry price (and including the more than 18% jump the shares had yesterday on the back of the announced merger with Betfair) he has made 12.4 times his money on the investment.
Asked if he had made any moves during the recent volatility, Nimmo said no, “The real money is gained by holding great companies over an extended period rather than from trying to trade volatility,” he said.
Nimmo has been in the spotlight a little recently as his fund was downgraded by Morningstar from gold to silver, earlier this month following a period of underperformance. But, Nimmo believes that the fund is positioned to do well from here.
“When the economy is recovering, and it has been recovering since 2009, and with interest rates at ultra-low levels, we have seen confidence building. In that sort of environment, no premium is paid for quality businesses with net cash and no debt,” he explained, “In fact, that is positively unhelpful.”
“Quality is not appreciated by investors, in that environment. They are looking for recovery, for housebuilders and cyclicals. We don’t invest in those sorts of businesses.”
Rather, he said, the fund tries to invest in tomorrow’s large companies today. As a result of that his performance suffered somewhat, particularly in the second quarter of 2014. But, he said: “I think investors are cottoning on to the fact that we are in a pretty late stage of the economic cycle and possibly it pays to be involved in stocks that are less risky.”
“We are about less risky ways of investing in smaller companies.”
Nimmo acknowledges that valuations are closer to the top of the range than the bottom (albeit less so now than they were a week ago) and, as a result returns might not be as good as perhaps they have been in the past.
Bu he adds: “We are in a part of the economic cycle where there is increased exposure to disappointment, external disappointment and maybe we have been seeing some of that over the past few days. But this is a fund with a stable process that has defensive qualities and our best periods, relatively are in down turns, so there is a resilience that is a positive.”
periods, relatively are in down turns, so there is a resilience that is a positive.”
Portfolio positioning
One of the criticisms levied by Morningstar of the fund’s current positioning is that it is more weighted towards mid-caps than it has been in the past.
Nimmo disputes this, pointing out that a large part of the fund’s benchmark, the Numis Smaller Companies Index is made up of companies in the bottom half of the FTSE 250 index.
“We are not out of line with our benchmark. Indeed, if you look at the average market cap of the fund it is a little over £1bn, which is not much different to the benchmark average of around £865m.
Nimmo adds, while there is a constant process of renewal and recycling of money into newer firms, he does like to run his winners and, it seems a shame to sell out of something just because it has become too big.
That said, Nimmo has sold out of what were two of the fund’s largest positions: Asos and Hargreaves Lansdown because of size issues.
