The manager of the Standard Life UK Smaller Companies fund disagrees with the view that all smaller companies’ funds are riskier than their larger company counterparts.
Harry Nimmo said: “I believe the fund should be considered as a core part of a UK equity portfolio. I don’t feel risk levels in my fund are any different than mainstream equity funds. The very largest companies have been known to blow up too.”
He feels that another misconception is that the companies in his target universe are too small to be meaningful.
Mr Nimmo said:“We’re not dealing with tiny companies here. They’re quite large at £400million-£500million, they employ thousands of people, typically make £20million-£30million a year profit and have little or no debt, so are self-sustaining.”
Despite the state of health of the UK economy generally, Mr Nimmo believes the entrepreneurial culture in the UK means there are plenty of quality businesses to invest in.
He said: “Fifteen out of the top 30 companies in my fund are still run by the founders who have very significant holdings.
“This means the people running the businesses have a vested interest in looking after shareholders’ equity.”
The sophisticated screening systems at Standard Life Investments help to reduce a list of 700 smaller companies.
Mr Nimmo said: “From there, I can concentrate on the 100 or so that pass the screening criteria by meeting the management to test the reliance of the business model and to test for possible false positives from our screening.”
In constructing the portfolio, the manager is looking to buy tomorrow’s larger companies today.
Mr Nimmo said: “Seven of the current FTSE 100 companies have been in my fund at some stage since I took over in 1997 – companies like Cairn Energy and FirstGroup are good examples.”
The fund has delivered a return of 40.8% over the last 12 months compared with a 29.1% return from the UK smaller companies sector.
For more information on the Standard Life UK Smaller Companies fund, visit www.standardlifeinvestments.co.uk or call 0845 279 3003.
Barry O’Neill is a chartered financial planner with Thomson Shepherd. He can be contacted on 01224 619215.