SLI Global Smaller Companies - investing in innovation
Richard Troue | Tue 13 February 2018
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- Companies with innovative products and services remain the focus of fund managers Alan Rowsell and Harry Nimmo
- They see opportunities in the fields of automation and healthcare innovation
- Performance has been impressive since launch and we are happy to retain the fund on the Wealth 150
Our View
We like the emphasis on innovative businesses with relatively new products or services and a competitive position they can defend. This makes it easier to grow market share further, expand geographically, or launch new products, with the overall aim to achieve sustainable profit growth in the long run.
Smaller companies that achieve this are capable of exceptional performance, and some will blossom into the household names of tomorrow. Not all will succeed though and smaller companies should be considered higher-risk than larger counterparts.
Alan Rowsell and Harry Nimmo have proved adept at finding promising smaller companies worldwide and we’ve been impressed with the performance of this fund since launch in January 2012. Today, Alan Rowsell is responsible for selecting the fund’s stocks and we believe he has the ability to deliver excellent long-term returns, although there are no guarantees. The fund continues to feature on the Wealth 150.
Performance
The fund performed well over the past year as it saw strong performance from companies across a number of different sectors. Below I highlight three leaders in their own niche market:
1. Sunny Optical – the maker of camera lenses continues to benefit from consumers’ demands for ever-better cameras on their smartphones. It struggled a little towards the end of the year over fears Apple was not selling as many iPhones as expected, but the manager remains excited by its long-term potential to grow market share.
2. Fever-tree - a G&T just isn’t a G&T without Fever-Tree tonic these days and sales at the premium drink-mixer maker have continued to beat expectations. This contributed to strong performance.
3. Align Technology - the US company continues to see strong demand for its clear dental aligners (used for straightening teeth) and it recently opened its first store in San Francisco. This enables customers to have their teeth straightened without visiting the dentist. Alan Rowsell and Harry Nimmo are impressed management continues to find new ways to grow.
These companies helped the fund deliver impressive returns over the past year and continue the strong run of performance seen since launch. Please remember past performance is not a guide to the future. Smaller companies have performed very well over the past few years and we believe there is excellent long-term potential in this part of the market.
It's important to remember though that they will also go through periods when they are out of favour and they tend to struggle when prospects for the wider economy seem dour. The manager has the flexibility to invest in emerging markets, which also adds risk.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Jan 2013 -
Jan 2014 |
Jan 2014 -
Jan 2015 |
Jan 2015 -
Jan 2016 |
Jan 2016 -
Jan 2017 |
Jan 2017 -
Jan 2018 | |
| SLI Global Smaller Companies | 24.6% | -0.4% | 5.4% | 35.4% | 25.2% |
| IA Global | 9.6% | 13.0% | -3.4% | 32.6% | 13.2% |
Past performance is not a guide to the future. Source: Lipper IM to 31/01/2018
SLI Global Smaller Companies - percentage growth since launch
Past performance is not a guide to the future. Source: Lipper IM to 31/01/2018
Where are the opportunities?
While it’s great to have made investments that have delivered excellent performance, fund managers must always be on the lookout for new opportunities. Fortunately, in the world of smaller companies there is rarely a shortage.
Recently, the manager has found a number of market-leading companies in the field of automation that could have excellent prospects.
The internet, for example, has changed the face of retail irrevocably. Shoppers spend a huge amount online and as a result demand for warehousing, plus the need to pick, pack and ship goods has exploded.
The manager believes this is positive for companies such as Jungheinrich, a German forklift and warehouse specialist. One of its systems helps manage and control various warehouse procedures to create a simplified, efficient distribution process.
Automation extends beyond industry though. The manager has also invested in a company called Alarm.com. It is the market leader in interactive home security, allowing consumers to create a fully automated, state-of-the-art smart home.
Finally, the manager has found opportunities among innovative US healthcare companies. Abiomed, for example, has developed breakthrough technology in the field of heart pumps for people with chronic heart conditions. He sees many years of strong growth ahead as the company trains heart surgeons in using the product, expands overseas and launches new products.
Overall, the portfolio is relatively concentrated. This allows each stock to contribute significantly to performance, but it is higher-risk.
Please read the Key Features/ Key Investor Information in addition to the information above.