THE LOW-risk, high-conviction approach taken by the managers of the Amati UK Smaller Companies Fund has paid off, with the trio now ranked among the top 20 performers in a listing of more than 4,200 global managers.
Paul Jourdan, David Stevenson and Douglas Lawson, who co-manage the £106 million fund, are now ranked at position 14 in financial information group Citywire’s listing of 4,217 global managers, making them the top-performing Scottish managers in the table.
The rankings are based on risk-adjusted performance over a three-year period, with the latest table covering the three years to the end of December 2017.
While the Amati managers, who are all AAA-rated by Citywire, have consistently topped The Herald’s listing of Scottish managers, they have steadily climbed the overall ranking in the past few months.
Last April, they were ranked 87th out of over 3,500 managers rising to position 51 in September to 28 in October.
According to Mr Stevenson, he and his co-managers have been able to deliver their performance because they invest in high-growth companies that are listed on the Alternative Investment Market (AIM), with many being tested in Amati’s venture capital trusts (VCTs) before being added to the smaller companies portfolio.
“The universe we invest in is UK smaller companies – we invest in AIM and another core part of our benchmark is the bottom 10 per cent by value of the full list,” he said.
“That universe has been a very good place to be in the last three years. If you look globally the best-performing asset class has been smaller companies and we are fully tapped into that.
“We run a collection of products that are integrated and which includes VCTs that invest in AIM. The starting point for those is companies with a market cap of about £20m – we are identifying businesses right at that extreme.
“We hope those will become really attractive growth investments.”
One such company that has performed well for the UK Smaller Companies Fund is Irish-based Keywords Studios, which provides outsourced services such as language and cultural translations to companies operating in the global gaming space.
Amati participated in the business’s 2013 AIM listing, buying in at a time when it had a market capitalisation of £30m.
Since then it has added it to the smaller companies portfolio, which has benefited from the company growing into a £1 billion business.
“It doesn’t always happen like that but that’s an indication of what can happen when you get it right,” Mr Stevenson said.
Another stock Mr Stevenson points to as performing well for the fund is Scottish business Smart Metering Systems, which owns and operates smart meters on behalf of Big Six and challenger energy companies.
Although it was not pre-tested in an Amati VCT, Mr Stevenson the team added it to the fund because it is an “uncorrelated play”.
“It has nothing at all to do with US inflation or what’s going to happen with Brexit,” he said.
“It has an annuity-type revenue stream going over multiple years. It’s a very sustainable business.”
Mr Stevenson said part of the reason the fund has done so well in recent years is that the quality of companies listing on AIM has improved significantly since the junior market was established in 1995.
“The bigger picture is that AIM has had trials and tribulations going back over 22 years but the last two years have been the best in its history,” he said.
“It had a reputation of some boom and bust in the past but now the best, fastest-growing companies are listing on AIM rather than going to the full list.
“They know that if they go and do what they promise to do, which is deliver superior returns, they can get almost a premium valuation on AIM.
“Institutions are now happier to invest in AIM than they would have been a few years ago.”
Earlier this year Amati added Adam & Company manager Anna Wilson to the team running the UK Smaller Companies Fund.
Mr Lawson has now moved to a part-time position.
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