Schroder UK Dynamic Smaller Companies – still early days for the managers

Jonathon Curtis | Mon 03 December 2018

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• Iain Staples joined Luke Biermann as co-manager in April this year
• Short-term performance has been volatile, and the fund suffered in October
• The fund doesn’t currently feature on the Wealth 150

Our view

We’re big fans of UK smaller companies. In among them you can find ones with the potential to become future stars. They could be doing business in a completely different way to larger, more established firms in an industry. Or they could be creating an entirely new industry themselves by being at the cutting edge of innovation.

Smaller companies in the UK have grown more than their larger counterparts over the long term. But that won’t always be the case, and they’re more risky. The share prices of smaller companies go up and down more than larger companies’ shares. So they’re best for investors prepared to accept more risk and invest for the long-term.

It’s been a little over a year since Luke Biermann took over as manager of Schroder UK Dynamic Smaller Companies. In April of this year he was joined by Iain Staples as co-manager. These are very short periods of time in investing. Certainly too short for our analysis to confirm if they’re genuinely talented stock pickers. That’s why the fund doesn’t feature on the Wealth 150 list of funds run by our favourite managers. We’re keeping Biermann and Staples on our radar though. As they build their track records in the UK smaller companies space, we’ll let you know if our view changes.

How has the fund performed?

Past performance is not a guide to the future.Source: Lipper IM to 30/11/2018

Past performance is not a guide to the future.Source: Lipper IM to 30/11/2018

The fund’s had a volatile year. It suffered during the October global stock market fall, and has ended the past 12 months slightly below the benchmark. As the fund invests in fewer companies than many other UK smaller companies funds, each one can have a bigger impact on the fund. So when many of them dropped in October, some sharply, it hurt the fund.

This is a short period of time to look at though. Although disappointing, it’s not uncommon for smaller companies funds to perform this way. They can do really well in rising markets, but also fall further than many funds in other sectors. This isn’t a guarantee of how the fund will do in the future though.

What do the managers look for?

Biermann and Staples like small companies they think are high quality with excellent long-term prospects. The companies should also have a strong brand or reputation. The products or services they offer must be different enough to give them an edge over competitors.

Boku is a prime example of what the managers look for. It allows customers to pay for online purchases using their mobile phone number instead of their bank account details. As it was one of the pioneers of this technology, it’s become the biggest independent company in the industry. Apple, Google, Facebook and Spotify all use Boku’s services. Biermann and Staples think there’s more opportunity for the company to grow. That’s why it’s one of the biggest investments in the fund.

The managers prefer companies from growing industries, or where the company is disrupting an industry with a new way to do things. They also like management teams that own part of the company, so they’ll run it for the benefit of shareholders. They’re not fond of the mining or biotech sectors, as they think they’re too risky.

Managers' outlook

Biermann and Staples are optimistic about the future for UK smaller companies. They think smaller companies are generally innovative by nature and will usually find opportunities for themselves. While many investors think the UK as a whole may struggle, they think smaller companies will be more resilient to any challenges ahead. The managers don’t pay too much attention to how the broader market for UK smaller companies is doing though. Their main focus is on the companies they invest in and whether their futures remain bright.

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