- Luke Biermann and Iain Staples recently invested in some medium-sized companies
- Returns under the managers have been held back by technology companies
- Their short tenures mean it’s too early to carry out a full analysis of their performance
We’ve long been champions of investing in UK smaller companies. Among them you’ll find some of the biggest long-term growth potential. But it’s important to remember investing in smaller companies also involves more risk than investing in larger ones, and there’ll be more volatility too. That’s why we think investors should only invest in the sector for the long term, and need to be prepared for the ups and downs along the way.
Luke Biermann has managed Schroder UK Dynamic Smaller Companies since August 2017, with co-manager Iain Staples joining him in May 2018. We like their philosophy, focusing on companies they believe are high-quality and resilient, with a clear opportunity for growth, and management whose interests are aligned with shareholders’. They have the flexibility to use derivatives to help them invest, which adds risk if used.
They’ve managed the fund for a relatively short time though. We prefer to look at performance over a longer period in order to make a full assessment of the skills of fund managers. Therefore the fund’s not currently on the Wealth 50 list of our favourite funds.
How’s the fund performed?
Since Biermann took over the fund in August 2017, it’s risen 1%*, compared with 11.4% for the average fund in the IA UK Smaller Companies sector, and a loss of 2.7% for the FTSE Small Cap (excluding investment trusts) index. Remember these figures aren’t a reliable guide to future performance and this is over a short timeframe.
Our analysis suggests technology companies have been some of the biggest drags on returns. One of the fund’s biggest holdings, mobile payments platform Boku, fell sharply at the end of 2018. During 2019, gaming technology provider Quixant has been the worst performer. The managers have held on to both of these companies though as they believe they’ll do well over the long term.
Staying invested in a short-term poor performer has worked well for Biermann and Staples before. Hazardous water specialist Augean was one of their worst investments last year, but has been one of their best in 2019 and is currently the fund’s largest holding.
Fund performance under Luke Biermann
Past performance is not a guide to the future. Source: *Lipper IM to 30/11/2019
|Annual percentage growth|
| Nov 14 -
| Nov 15 -
| Nov 16 -
| Nov 17 -
| Nov 18 -
|Schroder UK Dynamic Smaller Companies||12.5%||10.4%||27.2%||-6.7%||8.5%|
|IA UK Smaller Companies||14.6%||5.5%||28.5%||-4.5%||11.7%|
|FTSE Small Cap ex investment trusts||12.4%||8.0%||19.4%||-8.2%||5.3%|
Past performance is not a guide to the future. Source: Lipper IM to 30/11/2019
What’s changed in the portfolio?
Biermann and Staples want to improve the fund’s liquidity (how easily shares can be bought and sold) so they recently invested in three medium-sized companies, which are generally more ‘liquid’ than smaller ones.
Wizz Air is the largest low-cost airline in Central and Eastern Europe, whose economies are growing faster than those in Western Europe. Serviced office provider IWG recently completed a deal in Japan that’s increased profitability. Industrial products distributor Electrocomponents makes things that are vital to the modern world, and have a new CEO who’s negotiated new deals with suppliers. The managers think these companies are under-appreciated by the market, as they think investors generally prefer their competitors.
Biermann and Staples also sold companies they lost conviction in. They think luxury hotel operator Elegant Hotels has taken on too much debt, online booking platform Hostelworld badly handled a new distribution platform, and smart meter company SMS’s roll-out of energy meters is fraught with difficulty.