Merger’s just the tonic for smaller companies trust . . . with big ideas
PROVIDED two shareholder votes go the right way in the next n couple of weeks, win vestment me trust Standard Life UK U Smaller Companies is going to get a lot bigger.
Instead of a near £400 million fund, it will have assets under its wing of some £550 million. But the boost in size will only come if the trust is permitted to absorb the assets of rival Dunedin Smaller Companies. For that to happen, at least 75 per cent of voting shareholders for both trusts must agree to the move. Dunedin’s shareholders will vote this Friday while Standard Life’s will decide the following Wednesday.
With both of the trust’ s independent boards recommending a ‘merger’, it is unlikely there will be any investor revolt. The two trusts are now both managed by investment combine Aberdeen Standard Life following the merger of the two investment houses last August. Having near identical investment objectives, it makes little sense to continue with both trusts.
With the Dunedin fund having a poorer investment record than its counterpart, it is hoped the combined trust will benefit from the astute management of Harry Nimmo who has run Standard Life UK Smaller Companies for the past 15 years with great success. Over the past five years, he has generated investor returns of 84 per cent. In contrast, Dunedin shareholders have benefited from a return of 57 per cent.
Adding to the relative past pain for Dunedin shareholders, the trust’s shares have consistently traded at a double-digit discount while management charges have been inflated by a performance fee – dragging down returns.
Although Nimmo’s record on the investment trust goes back to 2003, he has managed smaller company portfolios for Standard Life for more than 20 years. The success of sister investment fund Standard Life Investments UK Smaller Companies prompted its ‘soft closing’ seven years ago amid fears the fund would get too big for Nimmo to manage. Despite warning off new investors, it still has assets of £1.6 billion.
Nimmo is a creature of habit, sticking to a tried and tested formula he developed in the late 1990s to identify likely smaller companies for inclusion in the funds he runs. It embraces a mix of quantitative and qualitative tests. He says: ‘I like businesses that make money, deliver profits and pay dividends. I avoid any- thing blue sky. I prefer growth businesses that can generate predictable earnings.’
Typically he will hold for at least six years and is not frightened to run with winners, even if they are no longer strictly classified as smaller companies. The only proviso is that no stock can represent more than five per cent of the trust’s assets.
The portfolio of UK Smaller Companies Investment Trust is littered with winners – the likes of drinks manufacturer Fever-Tree (bought at £1.34, now trading at above £37) and e-commerce company Abcam (bought at 60p, now above £14). These holdings are frequently chipped away at to keep within the five per cent holding limit.
Nimmo adds: ‘What is vital as a smaller companies manager is to find the new batch of Fever-Trees and Abcams – the success stories of the next six to seven years.’
He is putting his faith in the likes of Dart Group – owner of customer friendly Jet2 – car supermarket Motorpoint and technology company Accesso.
If the trust’s combined assets grow beyond £550 million on the back of positive investment performance, a lower charge will kick in on any excess at 0.55 per cent.