‘One of our holdings fell 92pc – but we still own it’

Marlborough Special Situations has outperformed all of its rival funds since Isas launched in 1999. Stock-picking veteran Giles Hargreave has run the £1.5bn fund since 1998, and was joined by co-manager Eustace Santa Barbara in 2014.

During Mr Hargreave’s tenure the fund, which invests in small UK companies, has delivered a total return of more than 2,900pc, compared with 509pc for the average peer, and 168pc for the FTSE All Share index. Telegraph Money spoke to the managers about what they are buying and why they still own a stock that has fallen 92pc.

GH:

I can’t tell you what is going to happen to markets any more than anyone else. There is all sorts of potential bad news that may or may not materialise, so I’d much rather concentrate on the stocks.

We’re keen on backing companies with successful management. We have been doing this a long time, so know lots of the top managers who move around. Full confidence in a management team makes a tremendous difference.

We specialise in a few areas of the market: we’ve got a technology expert, a mining expert, and a biotech and pharmaceutical expert.

These are the areas where successful investments tend to generate the greatest returns.

We don’t have more than 2pc in any one stock, to avoid losing a chunk of the fund if a company goes bust.

The average time we hold a company is just under two years, but there are some stocks we have held for 10 years or more. There are others that we’re just coming to understand, and so might be sold quicker if they don’t work out.

ESB: GH:

High debt levels, for one thing, which are unnecessary. We also don’t

CV: G. Hargreave and E. Santa Barbara Giles Hargreave is a top UK K smaller company ny investor, r, who also o manages es the UK Micro Cap Growth fund at

Marlborough. Eustace Santa Barbara joined the firm in 2013, and was previously at Close Brothers. like sectors that are volatile and difficult to understand.

We don’t like companies with a “me too” type product, as there are lots of competitors or potential to be disrupted: a pizza chain, for instance.

Stock pickers tell James Connington their strategy for success and choose their best and worst investments so far

ESB: ESB:

Accesso, the virtual queuing firm, RWS, a translation company, and Focusrite, an audio equipment manufacturer. We have also added Games Workshop, which sells fantasy figurines. It has a simple ambition: “Make the best fantasy miniatures in the world, sell them globally at a profit, and do this forever.” We like it when management can explain their plan in a simple way.

Right now, we think industrial metals is a good place to be, with the world economy growing. We’ve had some big successes, such as Central Asia Metals, a copper producer.

GH: GH:

For the moment, Brexit is taking the back foot, and not causing too much anxiety. Theresa May seems to have kept everyone calm, and the market is worrying about other things.

In smaller companies, you always have the possibility of bad man management or rising interest rates dera derailing an investment.

GH:

We can invest up to 20pc of the fund outside the UK, but only do so if we fe feel we have some knowledge that can b be useful. For instance, the metals and m mining sector is doing well, but yo you won’t find too many mines in t the UK, so you have to buy overseas. We wouldn’t do that without an expert in the sector with a history of good recommendations.

GH:

Restore, a storage business (see right), is one of the best. We bought at 26p eight years ago, and the shares are now at 563p.

Another is Dechra, a veterinary pharmaceuticals company that we have owned for almost all the 20 years I have been running the fund.

For the worst, logistics firm DX went from 100p when we invested to 8p today. We still own it, though, because new management could transform the company.

GH:

A substantial amount. I invested in six of Marlborough’s funds at inception, have added along the way, and never sold.

I am an American citizen, so can’t invest due to tax laws.

ESB: ESB:

Either engineering or music composition. I’ve always liked problem solving. I would have been playing cards in one form or another.

GH:

This is a prime example of a company we particularly like, that we would have the entire fund in if we could. We own about 11pc of the company. mpany.

It’s a document storage ge business with a very sensible structure. Management ent has been increasing the firm’s market share by buying up smaller companies. It has gone ne from a market share of a few per cent to more than han 20pc, which is significant. nt.

In addition to its very good ood document storage business, it has supplementary service units where its scale is a real advantage.

These include scanning and shredding services, which are fragmented areas of the market that Restore is trying to consolidate.

A lot of the time, the same individual at a company is in charge of the document storage and services such as shredding, so there are opportunities to cross-sell.

Restore is very well supported by the market. If it wants to make an acquisit acquisition, the market is quick to back it. It’ It’s a combination of very good manag management and a very simple to understand business.

We added to our holding recently, as the company made an acquisition that was partly funded by issuing new shares, which we subscribed to. The records managem management business is solid, and should make incremental improvements to margins in the coming years. The business model has consistent growth, predictable earnings, and is hard for other companies to replicate. Global competitor Iron Mountain’s shares trade at a 50pc premium to Restore’s.

www.telegraph.co.uk/funds ‘ IT HAS BOUGHT UP ITS RIVALS’