‘After 21 years a stock went bust on me for the first time’

Smaller companies have been the best performing part of the British stock market since the coalition came to power in 2010. The average fund that invests in the area has returned 201pc since David Cameron first became prime minister. The FTSE All Share index, a broad measure of the London market, gained just 110pc by comparison.

The £586m Standard Life UK Smaller Companies Trust has done even better, returning 330pc.

However, as smaller British stocks are currently out of favour with investors amid Brexit uncertainty, the trust’s shares are trading at a discount and a stake in the portfolio can be picked up for 6.3pc less than the value of its holdings.

Harry Nimmo, who has run the fund since 2003, tells Telegraph Money why investors need a longterm plan and why he is confident that smaller stocks can come back to form and beat other investments.

WHAT MAKES YOU DIFFERENT?

In many ways we are the same as others – our process is all about picking the right stocks. We think looking at economic numbers is futile. It should just be about finding companies that exhibit three things: quality, growth potential and moving in the right direction.

We look for businesses with low levels of staff turnover, especially at senior management level, and predictable earnings – so perhaps a company that gets paid in advance on a recurring basis rather than trying constantly to find new customers.

WHAT MAKES INVESTING IN SMALLER COMPANIES DIFFERENT?

We are trying to buy tomorrow’s larger companies today. Our experience is that taking less risk in smaller companies gives better returns, so we try to buy companies with proven business models that already make money rather than taking a punt on loss-making firms. Our performance has been very consistent and our process has been in place for 22 years.

We try to keep 80pc of the fund invested in smaller companies, but we are slightly lower than that at the moment as we’ve kept hold of some of the stocks that have grown and done very well for us.

Harry Nimmo, a smaller stocks specialist at Standard Life, tells Jonathan Jones why six years is the right time to own his fund

WHO IS THE TRUST FOR?

We try to emphasise the longterm nature of investing in smaller companies. Buyers of our fund should be able to handle stock market risk and be invested for six years or more.

To prove this we looked at how much money investors would have made over a six-year period since I started investing in this way 22 years ago. In all but one period investors would have made 10pc returns a year. From 2006 to 2012, around the financial crisis, investors would have made 9pc per year.

MARKETS HAVE BEEN RISING, SO IS IT TIME TO SELL?

We have been through two massive market downturns in my career, the tech bubble in 1999 and the financial crisis of 2008.

Right now things aren’t nearly as bad as they were in 2008, when we were looking at a collapse in the

banking system across the world. I don’t make big macroeconomic calls so there might be another downturn to come, but even so, if you wait six years, you should be OK.

WHAT HAS BEEN YOUR BEST STOCK PICK?

Abcam, a pharmaceuticals business, which has gone up 20 times since we bought it. Online retailer Asos, which we sold in 2013, also went up 20 times.

We still own a small percentage of Abcam, although really it is too big for the fund.

We have held six of our top 10

£1,000 invested in 2003 would be worth £13,544 today