Active funds double returns of passives
In the chaotic sell-off of the global pandemic, and subsequent rebound, active managers outperformed...
As I walked down Portobello Market recently I was immediately drawn to a couple selling candles. Did I need another candle? No. And I certainly didn’t need one costing £18 when I could just as easily find something similar costing less than a tenner in my local shops. But after talking to the young couple I was so taken with them and their small business of hand-poured soy candles with the slightly skewed labels so clearly glued on by themselves, that I wanted to support them, their business and this dream they’ve created. So I bought the candle I didn’t need and a second one for a friend.
‘Small businesses are really the engine in the economy.’ — Karen Mills, 23rd Administrator of the U.S. Small Business Administration
It turns out I’m not alone in my desire to shop small either. A recent survey by Vistaprint* found that younger Brits not only spend more when out shopping, but they’re more than twice as likely to shop in small businesses than older generations.
However, despite wanting to shop small, and many aspiring to be entrepreneurs and small business owners themselves, millennials still tend to be risk averse when it comes to their investments, choosing cash or passives.
While we know that millennials opt for ethical investments and there are various trends that are influencing their portfolios, it seems this particular lifestyle choice has not transferred to investments.
Millennials have been raised in an era of fast technological advancement, so it’s no wonder perhaps that they opt for ordering online, or signing up for a challenger bank, before going into a high street branch. Yet many passive funds invested in by millennials focus on already big and, in some respects, outdated technologies.
What about the new technologies coming to light? Are we not willing too except a higher level of risk compared to cash savings to invest in those businesses? Unicorn UK Smaller Companies fund invests in genuinely smaller companies such as Frontier Development**, a video game developer based in Cambridge. While they might not be as small as say a husband and wife duo in Notting Hill, they will be relatively unknown despite being the creators of award winning computer games like Planet Coaster. Not only are they award winners in their own right, but their proprietary technology has led to projects with both Microsoft and Amazon.
Another example of excellent innovate technology comes from data specialists GB Group, a top ten holding in LF Tellworth UK Smaller Companies**. GB Group has the ability to verify more than half the world’s population across 240 countries and territories. This could mean anything from instantly verifying your age when you open an online betting account by sending a photo of your passport, to identifying potential fraud cases in Big Lottery applications. Their technology is used across the globe and headquartered in Chester, with additional offices in London and Edinburgh.
We recently learned of Next Fifteen Communications from Ken Wotton manager of Gresham House UK Micro Cap fund when he came in to discuss some of most successful picks in his own years managing the fund. Next Fifteen Communications is a technology-driven marketing group that focuses on digital marketing for technology companies such as Facebook, Microsoft and Google.
Both Next Fifteen Communications and GB Group are top ten holdings in Marlborough UK Micro-Cap Growth fund alongside IMImobile**, a cloud based communications software. While not a product or name you’d know instantly, they power customer service experiences like agent chat boxes online. The software feeds the data into a two-way contact system so whether we’re speaking to a customer service agent via social media, text message, or even email, every communication is consolidated into a single desktop for the agent we’re talking too. This allows them to monitor and respond across any number of platforms through a single technology. Technology improving customer service and accessibility: I can get behind that investment.
*Survey of 1,000 British consumers and 1,000 small business owners in March 2019, https://www.vistaprint.co.uk/hub/marketing-your-business-to-millennials
**Fund factsheet at 30 April 2019