Jupiter UK Smaller Companies

Jupiter UK Smaller Companies fund offers investors access to a broad range of themes across the spectrum of the UK's smallest companies, from retailers to manufacturing exporters, from high-tech growth companies to established mainstream brands. Manager Dan Nickols is seen as a very safe pair of hands, consistently outperforming rivals over the past decade and longer.

Previously Merian UK Smaller Companies

Fund manager

Dan Nickols has managed this strategy in its various guises since January 2004. Previous employment included stints at Deloitte and Touche, at Morgan Stanley in the European equities division and at Albert E Sharp as a fund manager. His investment career started in 1994. He has a degree in Modern and Medieval Languages from Cambridge University.

Investment process

Dan employs a flexible style to manage the Jupiter UK Smaller Companies fund and will pick stocks he believes to be the best opportunities, rather than deciding on holdings through any particular style lens. To find these ideas, Dan uses a mixture of bottom-up analysis - looking at company fundamentals - and top down analysis, where he will look at the bigger economic picture to understand the drivers behind markets and companies.

To assist with stock analysis, all portfolio managers on the desk are considered analysts, and they have certain sectors they are responsible for researching. The team has worked together for a long period and has a certain set of criteria to look for.

This work covers an assessment of a company’s market position, strengths and weaknesses, economic sensitivity, financial stability, management quality, long- term growth prospects, and valuation. All of these factors are discussed in a weekly team meeting. The ideas are debated and challenged, and the team may decide that further analysis is required.

Finally, meetings with company management are an important part of the process. The team typically conducts over 300 meetings a year.
The top-down work is aimed at identifying the sectors that are likely to do better than the overall economy. The team studies a range of factors such as GDP growth, inflation and interest rates, plus significant events, trends and themes. This helps it identify what areas it wishes to be in and how to tilt the profile of the portfolio.

Stocks will need to be in the Numis Smaller Companies index at the point of initial purchase, but Dan can continue to hold them as they grow, including allowing up to 20% of the fund to be outside of this index. Individual positions will be between 0.5-3% on initial investment but will not exceed 5%. Dan can also hold up to 10% of the fund in non-listed companies. However, he will need permission to invest above a 6% weight in total.

ESG

ESG - Integrated  

ESG is integral to the investment process and the team is supported in its approach by a proprietary tool that enables it to assess portfolios and understand ESG risks on specific stocks. The team also has access to various third-party ESG tools, but uses them purely as a useful reference point to complement a wider ESG integration approach, rather than relying on them exclusively. The team believes that, particularly in the small and mid-cap space, some companies may not be covered by these external ESG data providers and these companies may be punished for their lack of disclosures. The process relies heavily on maintaining a detailed and consistent level of interaction with investee companies. Typically, the managers will meet with executive management of all investee companies prior to taking a holding. Should this not prove possible, the team would expect to meet with that company shortly after investment. The team also tends to meet with executive management twice a year to discuss both interim and preliminary results. Managers also regularly meet boards to discuss matters such as strategy and governance, which allows them to engage at the highest level and, where necessary, push for accountability.

Risk

With stock selection being the primary driver behind the construction of the Jupiter UK Smaller Companies fund and the portfolio being quite concentrated, the key risks are in the performance of the individual names. However, the rigorous investment process is designed to identify the risks to the company. As the fund is invested in smaller companies, there is some liquidity risk, especially around extreme stock movements. This is monitored by an independent risk team, though Dan is ultimately responsible, with this factored into the stock analysis work and the portfolio positioned accordingly.

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