ASI UK Smaller Companies – not as small as you might think
Jonathon Curtis | Thu 28 November 2019
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- Harry Nimmo’s ‘run your winners’ approach means he is invested in many medium-sized companies
- He’s increased investments in media companies to great effect
- Both recent and long-term fund performance has been excellent
Our view
The UK smaller companies sector is home to hundreds of businesses of all shapes and sizes. Generally speaking, smaller companies have more room for growth and are more likely to go unnoticed, providing lots of opportunities for those willing to look. Investing in them increases the risk and volatility too.
Harry Nimmo’s run ASI UK Smaller Companies for over two decades, and in that time he’s emerged as one of the most talented managers in the sector. He’s developed a clear and simple approach to investing – look for growing companies with proven quality, and ‘run your winners’ if they keep growing. He invests in a relatively small number of companies, so each can potentially make a big difference to performance, although it’s a higher-risk approach.
As Nimmo likes to stay invested as his companies get bigger, his average company size is larger than many other funds in the UK smaller companies sector. In fact, less than a quarter of the portfolio is currently invested in ‘small cap’ businesses. Nine of his top 10 holdings are either listed on the FTSE 250 (medium-sized company index) or are big enough to qualify for it. The other is listed on the FTSE 100 index of the UK’s largest companies. Nimmo normally looks to sell a company once it reaches this size though.
That’s why we view ASI UK Smaller Companies as more of a mid-cap fund. We don’t see this as a bad thing though, far from it. We think the fund is a great option to invest in some of the UK’s ‘sweet-spot’ companies – those that have more growth potential than larger businesses, but are less risky than smaller ones. This doesn’t make them a sure thing of course.
How’s the fund performed?
Nimmo’s more mid-cap approach has worked well for the fund recently. The fund has risen by 17.4% over the past 12 months*, while the FTSE Small Cap index hasn’t made any gains and the IA UK Smaller Companies peer group index has grown 5%. That’s of course no guide to future returns.
Over the long-term too, Nimmo’s delivered excellent results for investors. Since he took charge of the fund in January 1997, he’s delivered gains of 1,560.8%*. The peer group average, by comparison, returned 604.9% and the FTSE Small Cap ex investment trusts index rose 284%. These figures aren’t an indication of future performance, and you may get back less than you invest.
Our analysis puts Nimmo’s long-term achievements down his strong stock-picking skills. He’s usually grown the fund slightly more than the benchmark when the market’s been rising. But the real key to his success has been how the fund’s done when the market’s fallen. By focusing on financially strong businesses, the fund’s normally fallen less than the benchmark, and over the long-term that’s driven some of his best relative performance.
Fund performance under Harry Nimmo
Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2019
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Oct 14 -
Oct 15 |
Oct 15 -
Oct 16 |
Oct 16 -
Oct 17 |
Oct 17 -
Oct 18 |
Oct 18 -
Oct 19 |
|
| ASI UK Smaller Companies | 27.77% | 4.08% | 34.81% | -1.28% | 17.35% |
| FTSE Small Cap ex Investment Trust | 13.14% | 6.70% | 21.87% | -8.05% | -0.18% |
| IA UK Smaller Companies | 15.23% | 4.61% | 31.28% | -3.83% | 5.01% |
Past performance is not a guide to the future. Source: *Lipper IM to 31/10/2019
What’s changed in the portfolio?
As someone who likes to stay invested for the long-term, Nimmo hasn’t made too many changes to the fund recently. He’s increased investments in the media sector, with companies like digital media publisher Future and market research consultancy Global Data. Nimmo’s investments in media companies have been some of the fund’s strongest performers in 2019.
He’s sold, or is in the process of selling, companies that grew large enough to reach the FTSE 100 index, such as United Arab Emirates healthcare provider NMC Health and fashion retailer JD Sports. On the reverse side of his ‘run your winners’ approach, he’s also cut some of his losers, like queueing technology provider Accesso Technology and luxury clothing brand Ted Baker.
Whether buying or selling, Nimmo doesn’t pay too much attention to what’s happening in the UK economy. That’s partly because over half the profits of the fund’s companies come from overseas. It’s also because he believes over the long-term it’s the quality of the company that matters most. And if anything, Nimmo almost relishes difficult times as that’s often when the fund performs best relative to its peers, although of course there are no guarantees.