‘It’s a pretty happy sit­u­a­tion for shares’

The Daily Telegraph - Your Money - - INVESTING/FUND OF THE WEEK -

Britain’s smaller com­pa­nies have de­liv­ered spec­tac­u­lar re­turns to in­vestors in re­cent years. The sec­tor has av­er­aged a gain of 88pc over the past five years, ver­sus 56pc for the FTSE 100 in­dex. Giles Har­g­reave, man­ager of the Marl­bor­ough UK Mi­cro Cap Growth fund, is ar­guably at the top of the pile when it comes to smaller com­pa­nies. Over five years the fund has made an an­nu­alised re­turn of 17pc, fall­ing to a still im­pres­sive 14pc over 10 years, with the fi­nan­cial cri­sis in­cluded.

Tele­graph Money spoke to Mr Har­g­reave about postre­f­er­en­dum mo­men­tum, his favourite stocks and why we’re into a new leg of the bull mar­ket.

What’s your ba­sic stock-pick­ing method?

We have a very big team; there are 14 of us man­ag­ing the Marl­bor­ough funds.

We all have slightly dif­fer­ent meth­ods, but we an­a­lyse com­pa­nies for all the nor­mal things, free cash flow par­tic­u­larly. We look at val­u­a­tion and rel­a­tive val­u­a­tion.

Niche is a word we use a lot. We think a lot of our com­pa­nies are well placed be­cause they have a niche.

Man­ag­ing such a large num­ber of hold­ings – more than 250 – does re­quire a lot of work, but ev­ery stock in our fund is al­lo­cated to some­one.

With small firms you can’t trade too ac­tively in in­di­vid­ual shares and it takes a long time to build up and sell a hold­ing. There’s lots to do, but at the core of the port­fo­lio you have stocks you hold for five or 10 years.

I’ve been do­ing it for long enough to know that some­times you make mis­takes, but I like to think that the di­ver­sity in our port­fo­lio pro­tects us from “sin­gle stock” risk.

The fund has bounced back im­pres­sively since the ref­er­en­dum. Why is that?

The whole mar­ket came back be­cause of the de­val­u­a­tion of the cur­rency. A de­val­ued cur­rency al­most cer­tainly leads to a higher stock mar­ket, be­cause your earn­ings from over­seas are go­ing up.

The two-day shock took ev­ery­one by sur­prise. Then peo­ple started to buy, and they’ve been buy­ing ever since.

Once the mo­men­tum got go­ing it kept go­ing – in fact the fund went up ev­ery day be­tween Au­gust 5 and Au­gust 30.

We may now be look­ing at another leg of the bull mar­ket. There will come a time when it will go the other way, with in­fla­tion com­ing back, but for the mo­ment it’s a pretty happy sit­u­a­tion for shares.

Aren’t smaller com­pa­nies more vul­ner­a­ble be­cause of ex­po­sure to the UK econ­omy?

Look­ing at my top 10 hold­ings, I hon­estly can’t see an im­pact.

If you’re a house builder or a sup­plier to that in­dus­try, you’re bound to be un­der pres­sure if there is a slow­down. But that’s com­pletely un­proven so far, and I’ve hardly had a profit warn­ing among my hold­ings in the past six weeks.

Giles Har­g­reave of Marl­bor­ough tells James Con­ning­ton why the post-Brexit bull run has fur­ther to go

Could you name some of your favourite stocks?

The com­pa­nies that have done the best for us have pro­duced spec­tac­u­lar growth. Next 15 is a tech PR com­pany that rep­re­sents Facebook, Google and Mi­crosoft. There’s good re­peat busi­ness and a fan­tas­tic client list.

Ac­cesso is a vir­tual tick­et­ing com­pany and com­pa­nies such as Mer­lin En­ter­tain­ments are keen to use the sys­tem. The shares have been amaz­ing. It’s very ex­pen­sive, but it’s unique.

Fever-Tree, the up­mar­ket tonic wa­ter firm, is per­haps the best of all. It came to the mar­ket 18 months ago at 134p and to­day is trad­ing at £10.

When do you sell?

I’ll def­i­nitely look past val­u­a­tion, as we’re great be­liev­ers in not snatch­ing prof­its. If very good com­pa­nies get pretty ex­pen­sive in the short term there’s no point sell­ing them, be­cause you’re un­likely to get back in.

You have to be able to un­der­stand the qual­ity of the com­pany and if it’s some­thing that is go­ing to be there in five to 10 years and still grow­ing.

Do you have your own money in the fund?

Ab­so­lutely, I own all of our funds. Not mil­lions in each but a sig­nif­i­cant amount.

If you hadn’t be­come a fund man­ager, what would you have done?

I would have been a man­ager in the mu­sic busi­ness. How to buy the fund as cheaply as possible

The trust has a to­tal cost (the “OCF” or “TER”) of a year. Be sure to buy the right “share class”, which is “P”. The in­vest­ment shop through which you buy the fund will also levy a charge. Some will charge


a per­cent­age of the amount in­vested, others will ap­ply a flat an­nual fee. Our colour coded ta­bles at

tele­graph.co.uk/ in­vest­ing

will guide you to the cheap­est fund shop for your cir­cum­stances.


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