‘We caught the ath­leisure boom – and made 700pc’

The Daily Telegraph - Your Money - - FRONT PAGE -

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.

www.tele­graph.co.uk/funds ‘ THE PA­PER MENU IS DEAD’

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