ASI Global Smaller Companies: March 2021 Fund Update

Joseph Hill | Mon 15 March 2021

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• Harry Nimmo is a veteran of investing in smaller companies and a manger we rate highly
• The team uses a disciplined and time-tested process to uncover hidden gems around the globe
• The fund has performed strongly over the long-term, delivering returns ahead of the peer group average since launch
• This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

In the ASI Global Smaller Companies Fund, Harry Nimmo and his team hunt for smaller companies with the potential to deliver long-term capital growth. By investing globally, the fund could offer diversification to a UK focused portfolio with exposure to different regions and themes. Whilst smaller companies have more room to grow than larger ones, they do carry more risk. This fund could complement an adventurous growth-orientated portfolio investing in large or smaller companies.

Manager

With a career spanning three decades, Harry Nimmo is one of the most experienced smaller companies’ investors around and one we hold in high regard. After launching this fund in January 2012, Nimmo stepped back in 2016 but returned to provide a steady hand after the departure of the co-founding manager, Alan Rowsell, in June last year.

Nimmo also manages UK smaller companies’ portfolios, as well as a global mid-cap fund. The same investment process is used to manage each fund, and by each manager in the smaller companies team. Given how long Nimmo has managed funds, questions around his retirement are natural. At the moment he’s still a resource for other team members, but we will review the situation whenever he does eventually decide to step back.

Kirsty Desson has been co-manager since February 2020 but has been involved with the fund since launch. She has had a successful analyst career covering Japan, Asia and Emerging Markets, and has also managed other global portfolios. Desson is highly regarded by Nimmo and others at ASI, and we continue to monitor her transition into fund management.

Since our update last year, the team has bolstered its ranks with two new hires. Liam Patel covers Emerging Markets and Tzoulianna Leventi is a dedicated Environmental, Social and Governance (ESG) and European analyst.

Process

Nimmo and Desson look for companies around the world outside the usual candidates of large firms that dominate stock markets. They believe smaller companies have greater long-term growth potential, and are relatively under-researched and so there’s plenty of opportunity to uncover the larger companies of tomorrow. That said, the companies in which they invest tend to be larger in size than the benchmark.

Nimmo is the custodian of this process which hasn’t changed since it was first implemented back in 1997. It revolves around a core set of principles which focus on company specific factors. The managers hunt for sustainable growth over the long term which means they don’t invest in more economically sensitive parts of the market like energy or real estate. Their focus on quality leads them to companies with strong balance sheets and good management teams whilst avoiding those that are highly indebted or loss making. To identify these attributes, they use a quantitative tool called the ‘matrix’ which whittles down the universe of over 6,000 companies. The matrix output is continually reviewed, and the most attractive opportunities receive further analysis and team debate.

This results in a portfolio of between 40 to 80 companies, they currently hold 48. Just under half the portfolio is invested in the US, although this is less than the global stock market. In contrast, they invest more than the benchmark in Italy and the UK, a region Nimmo is very familiar with. The managers also invest in higher-risk emerging markets and can use derivatives, which if used adds risk.

The managers don’t position the portfolio based on their broader economic views, instead preferring to focus on analysing individual companies. Although, when viewed at a portfolio level, many of these companies provide exposure to global trends such as digitalisation. Momentum is also important, which means the managers like to run their winners and cut their losers.

Recent purchases made by the managers include the German company Jungheinrich which is a leading provider of material handling equipment such as forklifts. They believe the company will be a long-term winner with overseas expansion plans in the pipeline. Other recent purchases include two US firms, Floor & Décor and Yeti Holdings, both of which score well from an ESG perspective. In contrast, the managers have sold some investments, including its stake in railway parts manufacturer, Wabtec, and Altium, an Australian software company.

Culture

The fund was previously part of Standard Life plc, until the business merged with Aberdeen Asset Management in 2017 to create Standard Life Aberdeen plc. The fund now falls under the new group’s investment business, Aberdeen Standard Investments.

While mergers have the potential for disruption, we think the smaller companies team, which also includes UK and European funds, were relatively unaffected. They’ve been largely left alone to continue running their funds as they have always done. Aberdeen’s strong presence in the US is a useful resource the managers can now draw on as part of their own research into American smaller companies.

There’s a collegiate feel to the smaller companies team at ASI. Members share research and ideas with each other, and work with one another to debate and challenge stock decisions.

Cost

The fund is normally available for an annual ongoing charge of 1.05%. We negotiated a 0.27% saving though, so it’s available on the HL platform for 0.78%. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

Since launch in January 2012, the fund has outperformed the IA Global sector average, which tends to be focused on larger companies. Our analysis suggests stock picking has contributed to this and, whilst some of this cannot be attributed to the current managers, we believe Nimmo’s process is the key driving force behind this. Remember past performance doesn’t indicate future returns.

Over the past year the fund recovered well from the market stress caused by coronavirus after falling by more than its peer group during March and April. Over the last year, it returned 41.5%* vs 22.8% for the sector average. All investments fall as well as rise in value, so you could get back less than you invest.

One of the portfolio’s top performers was Israeli manufacturing company, Kornit Digital, after a record quarter of growth. Irish company Keywords studios also boosted returns over the past year. They provide services to video-game developers such as language translation and have recently announced several new acquisitions. Other notable performers include Generac Holdings, a US manufacturing company and Chegg, a leading provider in online education.

Past performance is not a guide to the future.. Source: *Lipper IM to 28/02/2021.

Find out more about more about ASI Global Smaller Companies including charges

ASI Global Smaller Companies Key Investor Information