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ASI Global Smaller Companies: June 2020 update

Jonathon Curtis | Tue 30 June 2020

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The fund is one of relatively few investing in smaller companies around the world
  • Harry Nimmo, who we rate highly, has returned to co-manage the fund
  • The managers use a clear and time-tested process for investing in companies
  • We have added this fund to our Wealth Shortlist of funds chosen by our analysts for their long-term potential

How it fits in a portfolio

This fund provides a double dose of diversification, by investing both across the globe and in smaller companies that are overlooked by many other investors. Smaller companies have more room to grow than larger ones but they’re also more volatile and higher risk. The fund could work well as part of an adventurous portfolio looking to invest in under-the-radar companies for their growth potential.

Manager

Harry Nimmo is one of the most experienced and successful smaller companies managers around, having managed funds since 1997 and delivered impressive long-term returns. We admire his investment approach, which has been replicated across many other ASI smaller companies funds with great success.

While he’s spent most of his career investing in UK companies, Nimmo’s no stranger to the global sector. He set up this fund with Alan Rowsell in January 2012 using his signature approach, which remains in place to this day. He stepped back in 2016, leaving Rowsell as the lead manager. Rowsell recently announced his departure from ASI, and so Nimmo’s returned to co-manage the fund. We don’t expect any changes to the way the fund is run.

Nimmo also manages UK smaller companies portfolios, as well as a recently launched global mid-cap fund. As they’re all run similarly and share many of the same companies, and having given up his team management responsibilities in February, we think he’s able to devote enough time to each.

In February 2020 Kirsty Desson stepped up to become co-manager of the fund. She’s a long-standing member of the team and has been involved with the research and analysis for several years. This move is a natural progression of her role and recognition of her long-term contribution to the fund.

This fund was previously on the Wealth 150 but was removed when the shorter Wealth 50 list was launched in January 2019. With a smaller number of funds we chose to remove some we still liked but at the time preferred other managers. With Nimmo back at the fund, we have high enough conviction to add it to the new Wealth Shortlist.

Process

Nimmo and Desson look for companies around the world outside the usual candidates of large firms that dominate stock markets. They believe smaller companies have greater long-term growth potential, and are relatively under-researched, making them a trove of opportunity.

With several thousand smaller companies around the globe, they first use a system called the Matrix to score each on the quality of its business, its growth prospects and the momentum behind its earnings and share price. This whittles companies down to a much smaller shortlist, which the team can then investigate and debate further.

The managers aim to have between 40 and 80 companies in the portfolio, and currently invest in around 50. This is reasonably concentrated, so each can have a significant impact on performance, both positively and negatively. Roughly 40% of the companies are based in the US, although this is a good deal less than the global stock market average. The remainder of the portfolio is mainly invested in developed markets such as Japan and the UK, but the managers invest in some higher-risk emerging markets too. They can use derivatives to help them invest, which also adds risk if used.

The fund currently has a lot invested in technology and healthcare companies. The managers think they’re among the areas most likely to benefit from the way the world is changing, and think the coronavirus pandemic has accelerated these shifts. They don’t position the portfolio according to their views on the global economy though – they’ll only invest in something based on the strength of the company.

Recent investments include UK-based Genus, the world’s leading provider of animal genetics to farmers, power generation equipment manufacturer Generac and US end-of-life care home provider Chemed.

Culture

The fund was previously part of Standard Life plc, until the business merged with Aberdeen Asset Management in 2017 to create Standard Life Aberdeen plc. The fund now falls under the new group’s investment business, Aberdeen Standard Investments.

While mergers have the potential for disruption, we think the smaller companies team, which also includes UK and European funds, were relatively unaffected. They’ve been largely left alone to continue running their funds as they have always done. Aberdeen’s strong presence in the US is a useful resource the managers can now draw on as part of their own research into American companies.

There’s a collegiate feel to the smaller companies team at ASI. Members share research and ideas with each other, and work with one another to debate and challenge stock decisions.

Cost

The fund is normally available for an annual ongoing charge of 1.05%. We negotiated a 0.27% saving though, so it’s available on the HL platform for 0.78%. As it’s generally more expensive to run a smaller companies fund, we think this is good value given its long and strong track record. The fund discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund’s delivered good performance amidst recent stock market volatility. It’s outperformed the global small companies benchmark by a wide margin over the past year*. Larger companies have done better than smaller businesses over this time though, so the fund hasn’t done as well as the broader global stock market, which has less exposure to smaller firms. Remember past performance doesn’t indicate future returns.

The portfolio’s top performers include US insulin pump maker Insulet, Polish supermarket Dino Polska and GMO Payment Gateway, one of Japan’s largest payment processors. Dart Group, owner of Jet2 airlines, has been disappointing as it suffered the full brunt of travel bans across Europe. The managers sold it as the outlook for the company is uncertain, and think there are better opportunities available.

The fund’s longer-term performance has also been strong. Since it launched in January 2012 it’s delivered a 215.8%* gain compared with 129.3% for the FTSE Global Small Cap index. It’s also beaten the broader global stock market, which is usually driven by the performance of large companies, over this time. The fund’s achieved this by broadly matching rising markets, but holding up much better during market falls.

None of the performance in recent years can be directly attributed to Nimmo or Desson, but we expect them to keep delivering long-term performance in this manner, although there are no guarantees. All investments can fall as well as rise in value so you could get back less than you invest.

ASI Global Smaller Companies performance since launch

Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2020

Annual percentage growth
May 15 -
May 16
May 16 -
May 17
May 17 -
May 18
May 18 -
May 19
May 19 -
May 20
ASI Global Smaller Companies 8.4% 36.7% 25.0% -1.9% 6.7%
FTSE Global Small Cap -0.5% 31.1% 13.1% -2.3% 0.2%

Past performance is not a guide to the future. Source: Lipper IM to 31/05/2020

More on ASI Global Smaller Companies, including charges

ASI Global Smaller Companies Key Investor Information

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.


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