Four core holdings for a new portfolio
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I always cheer on the underdog in movies. I’m also the person who will ‘buy local’ – supporting the boutique company trying to make it against the Amazons of this world. Where you spend, or invest, your money has such significance and by choosing these small companies you’re supporting their growth and sometimes the underdog too.
One place to find these businesses in the UK is the Alternative Investment Market (AiM). It was launched in June 1995, with the intention to provide a stock market for smaller, earlier stage companies, to help them access funding and fuel their growth. Starting life with just a handful of members, more than 3,600 firms have since listed, taking advantage of the less stringent regulations.
“Entrepreneurs have a great ability to create change, be flexible, build companies and cultivate the kind of environment in which they want to work.” — Tory Burch, fashion designer
However, as with any film that features an underdog, the AiM stock market has had its challenges. And, despite the growth potential, overall returns have been disappointing. Yes, there have been a few investment gems over the years – like ASOS, boohoo and Fevertree – but as a whole, it has returned just 18.1%* over the 25 years. In comparison, the main UK market, the FTSE All Share, has returned 319%*.
This is because while the AiM index has a lot of stocks with great potential, it’s had more than its fair share of. Careful stock-picking has been crucial to making decent returns over the past quarter of a century.
So, as the ‘millennial’ market approaches its 25th birthday, which funds have successfully invested in its constituents?
Managed by Dr Paul Jourdan since 2000, this fund has had various names over the years, the latest being a result of Paul co-founding Amati Global Investors in January 2010. The portfolio of 65-70 companies focuses on structural growth businesses. In a recent podcast Paul told us about some smaller companies benefiting from lockdown.
This is a very high conviction UK smaller companies fund run by Simon Moon, with around 40 holdings. All companies must be profitable at the point of investment and the team looks for businesses with lasting competitive advantages, experienced management teams and strong balance sheets.
This fund is run by a company that is itself listed on the AiM market. The portfolio has been managed by Ken Wotton since its launch in 2009, with the support of the 50-strong specialist team at Gresham House. Last year, Ken told us about how the AiM market has improved over his tenure and how they find new opportunities.
This very young fund has two experienced managers, Paul Marriage and John Warren, who have been successfully investing in smaller companies for many years. They focus on meeting company management and it is a true smaller companies fund that doesn’t invest in micro-cap or mid-caps.
This fund applies the team’s proven ‘economic advantage’ investment process to micro-caps. Investing in Britain’s smallest businesses, the fund follows in the footsteps of the successful Elite Rated Liontrust UK Smaller Companies and Liontrust Special Situations funds. Co-manager Matt Tonge once explained why UK tech companies tend to stay small.
The fund currently has 26.8%* in technology, including Eckoh, its third largest holding. Eckoh is a provider of secure payment products listed on AiM. Essentially, it provides security for electronic payments and helps reduce the risk of fraud.
*Source: Bloomberg, 25 March 1996 – the first available data point for the FTSE AIM All-Share – total returns in sterling
**Source: fund factsheet, April 2020