Catch up and a cuppa with… Graham McCraw

Graham McCraw, investment specialist for newly rated Standard Life Investments Global Smaller Companies fund, happened to be visiting our offices, the week the S&P 500 (the US stock market consisting of the countries 500 largest companies), suffered its worst one-day fall for many months.

As stock markets in Asia, Europe and the UK experienced similar falls, we asked him about the impact this had had on the world’s smaller companies.

Read our 60 second guide to the role of an investment specialist

What tends to happen to smaller companies when global stock markets are falling?

“Every stock market sell-off is different. The one we experienced at the start of October wasn’t due to an economic slowdown; it was in response to rising interest rates in the US. People were concerned that higher rates could put pressure on equity valuations.

“Smaller companies have had quite a difficult time as a result. But because we invest only in the highest quality companies, with strong balance sheets and good management teams, our style really comes into its own at times like this and we tend to perform relatively well versus our peers during difficult market conditions.”

Do you make any changes to the portfolio during or after a market sell-off?

“The investments in the SLI Global Smaller Companies fund are held very much for the long term. We focus on company fundamentals and our view on the wider global economy is very much influenced by what the companies we own are telling us.

“For example, we’ve met about a quarter of companies in our European Smaller Companies portfolio in the last few weeks to really understand what is going on on the ground. In most cases companies are still operating well and we still think they will exceed market expectations.

“Obviously, if there’s a massive market event good companies will fall in value along with bad ones. But in terms of what companies are telling us at the moment, the outlook is still broadly positive.

“We don’t have a particular view on interest rate cycles, we’re just looking to invest in the highest quality companies and hold them for long periods. That’s our process and we’re not going to change it.”

What type of company does the fund invest in?

“The companies we invest in are usually quite conservatively managed. Some of them are quite boring – but that’s a good thing. We find that clients quite like a lower-risk way of investing in smaller companies. We’ve been investing in the asset class for 21 years in the UK, ten years in Europe and almost seven globally. Over that time, we’ve found the best and most predictable way of generating returns is buying really high quality companies.”

Does the fund invest in emerging markets as well as developed markets?

“Yes, it’s very much a global fund and we’ve had a lot of success in emerging markets – we find our process works really well in those parts of the world.

“We have 149 equity investment professionals based around the globe, with a big team in Singapore, for example. Analysts within the team are split regionally and are responsible for creating ideas from their specific part of the world. One of the team – a fluent Mandarin speaker – was out in China in September, for example. China will potentially become a bigger part of our investment universe, so her language skills are a real strength. Another member of the team is heading out to Korea and Taiwan in November. So they are not just sitting at their desks looking for ideas – they’re visiting different countries and meeting different companies.

“Holdings in the SLI Global Smaller Companies fund are very much still picked from our Edinburgh base, but being able to tap into that huge resource out in Asia and in the emerging markets is a real benefit.”

Find out more about where the fund is investing in this video interview