‘We caught the athleisure boom – and made 700pc’
Small domestic British companies have had varied fortunes after the Brexit vote, but global small companies are performing well. The £900m Standard Life Investments’ Global Smaller Companies fund has returned three times the FTSE 100 over the past five years.
Telegraph Money spoke to fund manager Alan Rowsell 18 months after he took sole charge, following veteran investor Harry Nimmo’s decision to leave the fund. He explained how he picks from 6,000 small companies and revealed the American investment firm he sold at a big loss.
We’re investing in global smaller companies, the smallest 15pc of firms measured by market value. That’s actually 70pc of publicly listed companies in the world. The majority of small companies have outperformed large firms over time.
They are under-researched and have fewer analysts covering them – it is part of the market that gets ignored by a typical fund manager.
In short, we think investors should have exposure because of the outperformance, the fact it is not as risky as you might think, and because it offers portfolios real diversification.
We hold around 50 companies. It’s a pure stock picking approach, rather than allocating a certain amount to a country or sector, that’s where we think we can add value.
The fund can hold up to 20pc in companies that have grown beyond the scope of the index we measure ourselves against. This means the fund will always be a small companies fund, but we have the ability to hold on to our winners even when they’ve technically become large firms.
For instance, we bought Align Technology – which produces the
CV: Alan Rowsell
Mr Rowsell wsell joined Standard Life Investments vestments in 2006, 6, initially based in n Boston, Massachusetts. husetts. He has managed the fund d since its launch in early 2012. Until ntil 2016 he e co-managed with Harry Nimmo. He has an economics and politics degree from Bath University. popular Invisalign braces – and it now has a market value of £20bn.
There are 6,000 companies in the universe we look at, so we have six managers focused on different geographies and then have an analyst who runs “the matrix”. It helps us identify the companies that have the characteristics we are looking for: quality, growth and momentum.
Alan Rowsell tells Sam Brodbeck why his popular ‘go anywhere’ fund isn’t as risky as you might think
Yes, smaller companies are more volatile than larger firms, but maybe not as much as you’d expect.
There are a lot of very small, often illiquid, loss-making companies and if you screen them out, then you bring that volatility down. Our experience is that lower-risk companies in this space generate higher returns. We tend to find the sort of companies we are searching for in the technology, healthcare, consumer and professional services sectors.
We don’t normally find them in utilities and telecoms companies, which tend to be large firms that are highly regulated. We also avoid metals and mining, as they are driven by commodities prices and so are not in control of their own destiny.
Brexit didn’t really impact us as the UK is a small part of the fund [13pc], and our exposure is in international firms. Tonic maker Fever-Tree, for instance, will not feel anything from Brexit, it will still sell its mixers around the world. The best was Shenzhou International, a Chinese company listed in Hong Kong that makes sports clothes for Nike and Adidas, which has benefited from the “athleisure” trend. We bought at launch in 2012 and still hold it – it’s up 716pc in pound terms.
Part of being a fund manager is how you deal with your losers. One that sticks out was Financial Engines, an American company offering investment portfolio management. We thought it had a unique proposition. But the firm announced a price cut last year in the face of increased competition. We sold and lost 40pc on that one. I do invest in the fund, but don’t want to say how much. I spend my time meeting great entrepreneurs, I’d love to do something like that. Sadly, at the moment I don’t have a great idea so I’ll settle for meeting people with the great ideas and investing in their companies. Grubhub is the biggest food takeaway site in America, the equivalent of Just Eat. We got involved because the smartphone is driving a big shift in consumer behaviour. From ordering over the phone or in person, to ordering via smartphone – diners are leaving the paper menu in the drawer and demanding increased choice and convenience.
There is lots of room for growth – ordering online is still only 25pc of the total takeaway market. If you exclude the big pizza chains, it’s less than 15pc.
Grubhub connects 14.5 million diners a month with more than 80,000 restaurants. They are only scratching the surface.
The firm normally takes a 15pc commission on each order. In many cases it also does delivery. Just Eat is only just starting to do that here. This year Grubhub signed a major deal with Yum! Brands, which owns KFC, Taco Bell and Pizza Hut, to run its online ordering platforms. We bought in November last year, and it is now our largest holding. Since then our investment has grown 45pc in pound terms. Uber Eats and Deliveroo are competitors, but Grubhub is the largest and the only one focused on food delivery. Deliveroo is a loss-making business, while Grubhub is very profitable – having the firstmover advantage is important. Turnover grew 38pc last year, and is forecast to grow 39pc in 2018. Profit margins are attractive and improving – 22pc in 2017, rising to 26pc in 2018. It is very profitable and growing fast, in a market where the the internet’s impact is still low.
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