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TB Amati UK Smaller Companies: June 2021 fund update

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.
  • Amati’s co-founder, Dr Paul Jourdan, has been investing in smaller companies for over two decades
  • One of the strongest teams investing in the smallest parts of the UK stock market
  • Long-term performance has been impressive, boosted by great stock selection
  • This fund is on the Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
  • How it fits in a portfolio

    TB Amati UK Smaller Companies aims to achieve long-term growth by investing in the smaller parts of the UK stock market. Companies of this size are often overlooked by analysts, meaning there are plenty of opportunities for investors prepared to scratch below the surface. The team adopts a sensible approach which favours quality businesses and avoids excessive risk. That said, by nature smaller companies are higher risk so this fund could be suited to an adventurous portfolio focused on growth.

    Manager

    The fund is managed by Dr Paul Jourdan, David Stevenson, Anna Macdonald and Scott McKenzie using a team-based approach which enables them to have eyes in all corners of the market and leave no stone unturned.

    Dr Paul Jourdan co-founded Amati Global Investors in 2010 and was initially the sole manager. His management career began in 1998 and he’s since built up a wealth of experience analysing companies listed both in the UK and around the world. Jourdan is also the chief executive of Amati Global Investors, but we believe he is able to devote enough time to running this fund.

    David Stevenson joined Amati in 2012 and started his career as an accountant before working in various investment roles including corporate finance, private equity, and listed equity. Anna Macdonald was recruited in 2018 as the team continued to expand. Starting her career at Henderson Global Investors (now Janus Henderson), Macdonald has held various fund manager positions throughout her career, mostly with a UK focus.

    The trio became a quartet when Scott McKenzie joined the team in April this year. He joins from Saracen Fund Managers and brings over two decades of experience managing UK portfolios.

    They’re supported by analyst Dr Gareth Blades, who joined in 2019. His academic and life sciences background means he’s particularly involved in researching healthcare companies. All team members also manage other portfolios at Amati, but they’re all focused on small UK companies too, and the majority of their time is spent on this fund.

    Process

    The team’s process centres around detailed company research and invest the fund differently to the benchmark, which could boost performance potential. They look for companies that can grow faster than their competitors, usually through carving out a niche in a growing market or disrupting the traditional way of doings things. These tend to be high quality, financially robust companies with talented management teams. They avoid those that are speculative, highly indebted, or lack the edge to compete with larger, better resourced businesses.

    The team invest with the long term in mind. They start by investing 1-2% in each company and, if desired, build this over time to a maximum of 5%. Investments that exceed that size are trimmed. Other factors such as poor governance, a fading outlook or finding a better alternative will also trigger a sale.

    The team carries out quantitative analysis and meet company management to find ideas. One of the most useful sources of investment ideas is their VCT (Venture Capital Trust) portfolio which focuses on even smaller companies in the early stages of growth. Over time they get to know these companies well and often in a lot more detail than the wider market. Once they reach the required size, the managers already have a great insight should they wish to continue investing within this fund. For example, they first purchased gaming company Frontier Developments for the VCT in June 2013, at that point it was £48m in size. Today it sits within this fund and is valued at over £900m.

    This analysis whittles a universe of around 1,000 companies to a final portfolio of around 80. Whilst these companies are based in the UK, their reach is global with over half of the total revenue made by the fund’s underlying companies coming from overseas. Sector-wise the team find the most opportunity within healthcare and financials.

    The team also analyse private companies looking to list on the public stock exchange, known as an initial public offering (IPO). They only invest at IPO or once a company lists, and they will only be considered if they offer as much opportunity as already listed companies. Recently they invested in tinyBuild which provides a cost-efficient method of bringing game developers in-house. Likewise, they invested in Auction Technology Group. Having already built a strong presence overseas, the team believes the company has a long runway of growth ahead in their digitalisation of the traditional auction house.

    The team also recently added housebuilder Vistry, which provides exposure to the build-to-rent sector which the team believes offers plenty of growth potential and should benefit from easing lockdown restrictions. They also added specialist asset manager Gresham House who have market leading expertise in alternative assets such as forestry.

    Since the start of year, the team has sold investments in data analytics company GlobalData and asset manager Intermediate Capital Group. They also took some profits from private equity firm Draper Espirit following strong share price growth.

    Culture

    Amati Global Investors, the business behind the fund, specialises in investing in small-to-medium-sized UK-listed companies. We like this dedication to this investing niche, as it means the business is solely focused on finding the best growth potential within the UK smaller companies’ sector.

    The business is majority-owned by its employees, and all staff are encouraged to invest in it. We view this positively, as it means the managers and staff share a long-term view and it aligns their interests, and that of the business as a whole, with investors.

    Amati Global Investors are signatories of the United Nations-backed Principles for Responsible Investment. The managers consider environmental, social and governance (ESG) factors as part of their investment process and adopt a clean trade approach which means they avoid companies that support oppressive regimes.

    Cost

    The fund is available for an annual ongoing charge of 0.89%. This is higher than many others in the UK Smaller Companies sector, and so the managers have a higher hurdle to deliver a positive return. The HL platform fee of up to 0.45% per year also applies.

    Performance

    The fund’s long-term performance record has been exceptional. Over the past 10 years it’s returned 310.6%* vs 228.1% for the IA UK Smaller Companies sector average. Our analysis suggests this is the result of great stock picking, particularly within sectors like consumer discretionary, healthcare and financials. Remember past performance doesn’t indicate future returns.

    Historically this fund has held up better than the IA UK Smaller Companies sector average when markets are falling which we would expect given the focus on quality. The fund has also tended to outperform when markets are rising. It’s important to remember during periods of market stress, smaller companies have tended to be more volatile than large ones. Smaller companies are also less liquid (their shares are harder to trade), which can heighten falls if many investors try to sell at the same time.

    Over the past 12 months the fund returned 49.3%* vs 53.9% for the sector average but it was exposed to lower levels of volatility. The team aims to outperform over time, and they have achieved this since launch but this is not a guide to how it will perform in future. Investors should be prepared for volatility along the way.

    Materials technology company HeiQ was one of the top performers over this period. The managers invested at the company’s IPO in December 2020 after being drawn in by its textile technology, some of which is resistant to bacteria and viruses. Renalytix AI, a medical diagnostic company, was another strong performer and was recently awarded a 10-year US government contract to provide services related to early-stage kidney disease. Not all their holdings performed well though. Renewable energy firm SIMEC Atlantis Energy detracted following project delays whilst the impact of lockdown has continued to hinder healthcare company Yourgene Health.

    Annual percentage growth
    May 16 -
    May 17
    May 17 -
    May 18
    May 18 -
    May 19
    May 19 -
    May 20
    May 20 -
    May 21
    TB Amati UK Smaller Companies 34.4% 23.6% -1.7% -3.0% 49.3%
    IA UK Smaller Companies 27.6% 12.8% -4.0% -7.0% 53.9%

    Past performance is not a guide to the future. Source: *Lipper IM to 31/05/2021.

    More on TB Amati UK Smaller Companies, including charges

    TB Amati UK 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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