Investors looking to understand how to get the best from investments in smaller companies should look to Aberdeen Standard Investment’s (ASI’s) Harry Nimmo.
Nimmo manages both the ASI UK Smaller Companies fund and recently returned as co-manager of ASI’s Global Smaller Companies fund. He returned to this position after its investment analyst Imogen Harris and fund manager Alan Rowsell left their respective roles.
For Mr Nimmo, this is a return to a £1 billion fund he launched almost a decade ago and ran for five years.
Both funds can boast an enviable track record, too: ASI Global Smaller Companies has seen returns over five years of 97 per cent, against a global small-cap market return of 59 per cent. His UK fund, meanwhile has delivered 30 per cent over three years – against just four per cent of the wider UK smaller companies market.
One reason why Nimmo’s smaller-cap funds can offer great opportunities is that, with the world climbing out of the turbulent economic waters of the 2020 coronavirus pandemic, smaller companies are often in a stronger position.
According to Nimmo, smaller companies tend to underperform on the way into a downturn as they are generally more exposed and cyclical than large-cap firms. But precisely because they often initially get hit harder than large companies, small-cap firms can recover more sharply.
Another tactic of Nimmo and the small-cap funds is to look for growth opportunities in businesses with positive momentum and genuine resilience.
It’s also important to avoid what Nimmo describes as ‘bombed-out’ companies. These are companies that have suffered during a downturn, but whose share price suddenly starts to do well as a recovery becomes inevitable.
These are short-lived boosts if the company’s underlying fundamentals are not sound however, so while Nimmo’s funds can sometimes seem to be underperforming at this crucial phase of a market recovery, in truth he is carefully sidestepping a mirage of false value.
So while it’s true that ASI’s small-cap funds are adventurous in their investing approach, they don’t rush in where angels fear to tread… as their track records of returns prove.