Backing UK small caps in 2023
This article first appeared on professionaladviser.com on 9th January 2023 I don’t think many...
It’s that time of year when Santa decides who has been naughty and nice – and everyone opens their presents with a degree of apprehension.
Will there be a luxury gift costing a small fortune lurking inside? Or are fixed grins needed as yet another pair of socks are unwrapped?
Here, we take a look at the companies whose products are often staple parts of most people’s Christmas stockings – and which funds invest in them.
Fancy a tipple on Christmas morning? Diageo is behind many of the world’s most popular drinks brands so maybe you’ll be lucky enough to find a bottle in your stocking. Guinness, Tanqueray gin, Johnnie Walker Scotch whisky, Smirnoff vodka, and Baileys cream liqueur are just some of the names in its drinks cabinet.
The company reported net sales of £15.5bn for the year ended 30 June 2022 – 21.4% up on the previous year, helped by resilient customer demand*. Diageo is currently the fifth largest holding in the Rathbone UK Opportunities fund that’s managed by Alexandra Jackson**.
We spoke to Alexandra recently for the ‘Investing on the Go’ podcast:
The video games industry is booming, with people of all ages going head-to-head with friends and family members – as well as with complete strangers online. British company Frontier Developments, which launched in 1994 and is floated on the Alternative Investment Market (AIM), makes a variety of games for PC and console platforms.
These include Jurassic World Evolution, Planet Coaster, and FI Manager 2022, which enables you to become boss of your own race team.
The company is one of the 10 largest holdings in the Unicorn UK Smaller Companies fund, with a 2.9% weighting**. Simon Moon, the fund’s manager, aims to achieve long term capital growth by investing primarily in UK companies included within the Numis Smaller Companies plus AIM Index.
Snuggling down in front of a fire with a good book is a treat after having eaten your bodyweight at the family Christmas lunch. Bloomsbury is an independent UK business that is widely known for publishing the hugely popular Harry Potter series by JK Rowling. The company, which publishes both fiction and non-fiction titles, has been celebrating the festive season by offering up to 30% of hundreds of its titles.
It’s one of the 10 largest holdings in the LF Gresham House UK Multi Cap Income fund that’s managed by Ken Wotton and Brendan Gulston**. This fund has a bias towards smaller companies and benefits from Ken’s many years of expertise in this area of the market.
A new timepiece would be a particularly lovely gift to find at the bottom of the stocking – especially if it came from Watches of Switzerland. The retailer, which has strong positions in the UK and US, offers luxury brands such as Rolex, Cartier, Patek Philippe, TAG Heuer, and Omega It also sells a wide variety of other items, including cufflinks, pens, wallets, business card holders, and jewellery boxes.
Abby Glennie, who runs the abrdn UK Mid-Cap Equity fund, likes the company and has allocated it a 3.2% weighting in her portfolio**. The fund invests in high quality, resilient businesses that it believes offer the prospect of long-term sustainable growth.
What Christmas would be complete without the obligatory box of smellies? As consumer goods giant Unilever sells 400 brand names in more than 190 countries, the chances are you’ll have used some of its products! One of the most popular for the festive season is Lynx, which offers a full array of body sprays, deodorants, body washes, and other styling products.
Unilever is the third biggest holding in the CT UK Extended Alpha fund, with a weighting of 5%**. The fund, which has been run by Chris Kinder for more than a decade, looks for out-of-favour companies with resilient long-term business models.
Chris gave us his views on the UK stock market and the make-up of his portfolio in this recent interview.
A pair of socks may not be the most exciting gift to unwrap – but they are hugely popular with present buyers and will certainly be practical! Online fashion retailer Next could benefit. The company was even offering a two-pack of Christmas pattern socks for £7 when we checked online this week.
Of course, it’s not a legal requirement to buy socks. Those with bigger budgets can treat their loved ones to a wide variety of the company’s clothes and gifts. Next is one of the top 10 holdings of the Ninety One UK Special Situations fund**. Its managers, Alessandro Dicorrado and Steve Woolley, take a contrarian approach by favouring companies that are both unloved and undervalued – a bit like those aforementioned socks!
Okay, it’s not the most original gift in the world but a voucher is preferable to secretly exchanging the hideous Christmas jumper. Our increasing love of online shopping means there are numerous companies offering gift cards that can be exchanged for products or services.
One from Amazon, for example, will always go down well as the e-commerce giant sells pretty much everything you can imagine – with many items being delivered the following day.
Amazon is the second largest holding in the T.Rowe Price US Large Cap Growth Equity fund, with an 8.6% weighting**. Its manager, Taymour Tamaddon, looks for companies that can generate above average growth for the next three to five years, determined by how much free cash flow they can produce.
*Source: Diageo, 28 July 2022
**Source: fund factsheet, 31 October 2022
Photo by Donna Spearman on Unsplash