TM Tellworth UK Smaller Companies

This is a pure smaller companies fund run by two very experienced and highly regarded managers, Paul Marriage and John Warren. It focuses on smaller companies, avoiding micro-caps and mid cap stocks and meeting company management is integral to the investment process.

Our opinion

Paul and John have an outstanding long-term track record investing in smaller companies. Tellworth UK Smaller Companies fund is very similar to portfolios they have run before. It has a solid but flexible process, which affords them the necessary freedom to focus on the job of picking stocks.

Fund manager

Paul Marriage and John Warren are both highly experienced and have been investing in UK smaller companies for many years. They first worked together at Cazenove Capital, managing the Cazenove Smaller Companies fund, before it was acquired by Schroders in 2013. They then worked together on the Schroder UK Dynamic Smaller Companies fund amongst others, before leaving to set up Tellworth. The managers retain a good relationship with Schroders and still manage an external mandate for their previous employers.

Paul Headshot_Tellworth

I failed at insurance broking, I wasn’t much better at selling shirts, but somehow I’m a respectable stock picker – it’s as much about experience as it is expertise.

Paul MarriageFund manager

Investment process

Launched in November 2018, this is a true smaller companies fund. It doesn't invest in micro-caps or mid-caps like some peers. The managers avoid high risk areas, so don't invest in oil & gas, biotech or mining businesses, for example. They begin by running a number of different quantitative screens, to eliminate a number of factors, including companies with aggressive accounting or poor corporate governance.

The managers will then apply their 'P3M' process to the remaining stocks. They look for companies with a differentiated product, high sustainable margins, management aligned with shareholders and a market leading position. These companies will make up 75% of the portfolio. The remaining 25% will be made up of value opportunities such as self-help stories which are enjoying a turnaround or misunderstood businesses. Meeting companies is a key part of the process.

ESG

ESG is not a primary goal of the fund, but ESG issues are holistically built into the managers’ stock selection process when performing fundamental analysis of companies. Top-level work reduces ESG risk, with screens removing companies involved in oil and gas production, as well as mining. There is also a ‘sinners screen’ in the process, which removes those firms with poor governance metrics. The managers believe this governance angle also helps with environmental and social factors as a by-product of good management - those running a business well, fairly, and independently, are likely to conduct business ethically with all stakeholders in mind and produce better outcomes as a result. The process also involves many management meetings, where lots of issues are discussed. ESG interactions are recorded in a noting system, building a knowledge base specific to the investment universe. As well as removing risks, ESG concepts also provide investment opportunities, and the managers will look to identify firms that can capture these trends.

Risk

Tellworth UK Smaller Companies fund is well diversified with around 50 underlying holdings. The managers avoid the smallest, most illiquid stocks and the fund has a strict capacity limit to prevent it getting too big. The managers are keenly aware of the dangers of owning too much of any one particular company.

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