Standard Life UK Smaller Companies - backing the tortoise over the hare
Jonathon Curtis | Thu 22 November 2018
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- Harry Nimmo invests in companies in good financial health that he thinks will grow
- He prefers growth that’s steady rather than potentially rapid but erratic
- Long term performance is excellent
Our view
We think experience counts when investing in UK smaller companies. And there aren’t many more experienced managers than Harry Nimmo. He’s invested in UK smaller companies for over two decades. During that time he’s built up an enviable track record.
Nimmo uses a robust process and is backed by a strong team. He prefers growth from companies that’s steady and reliable rather than fast but unpredictable, and this has led to good long-term performance. There’s no guarantee how the fund will perform in the future though. It’s currently on the Wealth 150 list of our favourite funds.
How’s the fund performed?
Nimmo’s delivered excellent results over the long term. In the past 10 years he’s grown the fund by 398.5%. The FTSE Small Cap (excluding investment trusts) index grew 269.3% over the same time. Past performance isn’t an indicator of future performance.
More recently the broader market of smaller companies fell in value, and this impacted the fund’s performance. This is a short time period though and we prefer to focus on the longer term. But it’s a reminder smaller companies can be volatile and are higher risk than larger firms.
Standard Life UK Smaller Companies 10 year performance
Past performance is not a guide to the future. Source: Lipper IM to 31/10/2018
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Oct 13 -
Oct 14 |
Oct 14 -
Oct 15 |
Oct 15 -
Oct 16 |
Oct 16 -
Oct 17 |
Oct 17 -
Oct 18 |
|
| Standard Life UK Smaller Companies | -5.9% | 26.6% | 3.3% | 34.0% | -1.9% |
| FTSE Small Cap ex Investment Trust | -0.1% | 13.1% | 6.7% | 21.9% | -8.1% |
Past performance is not a guide to the future. Source: Lipper IM to 31/10/2018
How the manager invests
Nimmo focuses on small companies he thinks are in good financial health and have excellent growth prospects. He thinks they’re more likely to survive times of market turbulence.
When times are good and companies are growing, he likes to ‘run his winners’. So he’ll stay invested as they become larger. That makes his average company size bigger than many other smaller company funds. We like the fact he takes a long-term approach to investing. He also has the flexibility to use derivatives, which if used adds risk.
Software companies currently make up 13% of the fund. Nimmo likes the software sector as he thinks it’s a reliable source of future growth. On the other hand, he avoids oil, gas and mining companies. Many in those sectors have done well recently, but he thinks they’re too risky.
Manager’s outlook
Nimmo’s more optimistic than a lot of other investors. While some are quick to sell investments that’ve performed well, he thinks certain companies have strong enough advantages to keep them leading the pack year after year.
Fevertree’s an example. Some investors think the company’s shares don’t offer a lot of growth potential after already performing well. But Nimmo thinks differently and still sees big potential for the company. That’s why it’s one of the fund’s biggest investments.
All investments can fall as well as rise in value so you could get back less than you invest.
Nimmo knows many investors are worried about the impact of Brexit. But the average company in the fund earns more money from overseas than in the UK. His outlook for the fund is positive, but further volatility shouldn’t be ruled out.
Please read the Key Features/Key Investor Information in addition to the information above.