Top small-cap fund manager, Miton’s Gervais Williams, talks about his approach to trading micro stocks, recent trades, and investment opportunities in 2018.
Please explain your approach to picking micro stocks and give examples?
We tend to select companies which are immature income generators in the longer term, so these are companies which aren’t necessarily generating an income now, but are investing hard, hopefully for productivity improvement, with a cashflow payback over the next three or five years.
An example might be something like Wey Education (WEY), which we invested in perhaps a couple of years ago, to improve its online education systems, and that’s led to a rapid growth of the business and its share price appreciation.
Perhaps another example, less mature at this stage, is a company called Crossrider (CROS), which is involved in internet security. It helps online security for individuals. It came into the portfolio when it was actually at a discount to cash, it’s been investing some of that cash in newer areas, and we’re beginning to see the payback on that as well.
How has the fund performed relative to its benchmark and peer group?
We’re particularly interested in making absolute returns for clients over the longer term. We’re not immune from market movements of course. Since the fund was first set up in April 2015, the NAV of the fund has appreciated just a little under 35%, so it’s made a good start, but particularly we’re looking to see that continue in the future.
Which stocks have you been buying and selling recently and why?
The market’s been quite busy over recent months. We’ve seen quite a lot of secondary placings, probably the most recently been involved in, there’s a company called Versarien (VRS), which is involved in graphene production, where they’ve announced further contracts since that placing.
Another example is we’ve topped up some of our existing holdings, Bilby (BILB) is probably a good example in that case where we’re talking about housing, helping housing companies meet their requirements in terms of heating systems and such like. They have very high standards in that area.
We’ve taken some profits along the way as well. Avingtrans (AVG) has made an acquisition, and we took some profits after that acquisition. And perhaps another example is that we have taken some profits on some of our larger holdings, which have got very large, IQE (IQE) has continued to perform very strongly, we’ve taken some profits on that. And we’ve sold our holdings in IG Design (IGR) basically because it became too big for the fund.
In which sectors do you see most opportunities?
The whole nature of this fund is it invests right the way across different industrial sectors and opportunities. There are companies which are doing better because of the devaluation of sterling, so that might be companies related to manufacturing or software services where they’re selling from a UK, a cost base into overseas international opportunities. So that’s probably one of the most exciting areas at the moment.
But we’re also seeing the oil price and some of the commodity prices picking up, and there’s some opportunities to top up some of those holdings, which will also get very quick cash payback, which we found pretty attractive.
What attributes should investors seeking new small-cap opportunities look for?
I think what we’ve got to look for is companies which are very resilient, well positioned in the market place, but most particularly have the opportunities to invest for productivity improvement. As we know, productivity hasn’t been improving generally across the world over recent years, and if we can find individual companies which are able to buck that trend, generate productivity improvement, that will give them the best opportunities of getting cashflow in the future, and generating an attractive return for investors.
This is the transcript of a video filmed in December. To watch the original video, please click here.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.