Fund spotlight: Amati UK Smaller Companies Fund

by Dzmitry Lipski from interactive investor |

interactive investor's analysts give an update and view on the Amati UK Smaller Companies Fund.

Concerns about the Brexit outcome have made many investors shy away from the UK equity market. As a result, the UK is now trading at the greatest discount in the last 25 years relative to other developed equity markets such as the US and Europe.

Following the EU referendum in 2016, larger UK companies have outperformed their smaller counterparts, with support from a weak pound helping those who derive much of their revenue from overseas.

However, despite short-term weakness, small cap equities have delivered much better performance than large-cap equities over the longer term. This outperformance is mainly attributed to the fact that smaller companies are typically under-researched, underinvested, and less efficient than the market for large caps and, therefore, could yield superior returns over time. 

UK smaller companies can offer a variety of investment opportunities as they represent a wide universe of businesses, many of which have huge potential for growth because they are often nimble, dynamic and innovative. This gives them the flexibility to expand quickly into new areas and potentially become tomorrow's global leaders.

The fund

Amati UK Smaller Companies Fund aims to achieve long-term capital growth by running a well-diversified portfolio of UK smaller companies. The fund is benchmarked against the Numis Smaller Companies Index and can invest up to 50% in AIM-listed companies.

It has been managed by Paul Jourdan since 2000, David Stevenson since 2012 and Anna Wilson since 2018. Jourdan established the smaller company specialist boutique Amati Global Investors in 2010 and believes that having three managers makes decision-making agile enough to respond to opportunities.

The managers utilise their research and experience from their AIM Venture Capital Trust (VCT) fund, which provides a pipeline of emerging growth ideas to this fund. 

By employing a predominantly fundamental, bottom-up, stock-picking approach, the managers look for companies that can grow faster than the broader economy over the longer term. These are typically companies demonstrating strong barriers to entry, competitive advantage, pricing power and sustainable growth. The trio also take account of the underlying macro-economic conditions and industry trends with a goal to providing a "fund for all seasons". 

What's in it?

The portfolio typically holds between 50 and 70 companies, with a maximum individual weighting of 5%. Sector allocations are largely a result of bottom-up stock picking. As of August 2019, there were 69 companies in the portfolio.

It currently has around £297 million in assets under management with 24% invested in Financials, 17.7% in Industrials, 10.5% in Technology and 19.4% combined in Consumer Goods and Services. Among its top holdings are specialist asset manager Intermediate Capital, telecommunications testing company Spirent (LSE:SPT) as well as specialist lender Onesavings Bank (LSE:OSB).

Liquidity is treated as a distinct category of risk, and the managers seek to diversify the portfolio by market cap to maintain sufficient liquidity in the event of a market downturn. While close to 25% of the fund is invested in companies with a market cap below £250 million, almost half of the fund is in companies worth £500 million or more.

How does it perform?

Jourdan and the team have built a very strong long-term record, with the fund comfortably outperforming both its benchmark and the category average over both short and longer time periods.

  01/10/2018 - 30/09/2019 01/10/2017 - 30/09/2018 01/10/2016 - 30/09/2017 01/10/2015 - 30/09/2016 01/10/2014 - 30/09/2015
TB Amati UK Smaller Companies Fund -5.02 17.98 31.40 20.09 16.69
Numis SC Plus AIM Ex Invt Com Index -7.34 3.04 21.26 10.02 5.40
Morningstar UK Small-Cap Equity Sector -6.88 9.57 24.87 7.33 12.39

Source: Morningstar Direct as at 30th September 2019. Returns in GBP

ii view

Amati UK Smaller Companies Fund is included in the ii Super 60 list of high-conviction investment ideas as a UK Equities, Smaller Cap recommendation. It provides exposure to quality growth opportunities from the UK market selected by Amati's highly experienced team of managers. Due to the fund's unconstrained, concentrated nature and heavy exposure to AIM stocks, its return profile is likely to be more volatile, making it higher-risk and better suited as a satellite (adventurous) holding in a well-diversified portfolio.

If you enjoyed this article, you may also like other funds picked for interactive investor's Super 60 range of high-conviction investment ideas. Click here to find out more.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. 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.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article. 

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