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6954.1 + 35 0.5% 02:17

Nimmo sticks to his style despite cyclicals-led rally

Harry Nimmo is sticking with Standard Life UK Smaller Companies’ strategy, remaining sanguine over missing out on what he suspects is a short-lived cyclicals-led rally.

A-rated Harry Nimmo, manager of the £162 million Standard Life UK Smaller Companies investment trust, is sticking with his growth-oriented stock-picking style, despite losing out in the recent rally.

He said the rally was an example of the January effect, when the market favoured cyclical stocks.

The January effect

‘This market is quite difficult: it’s moved to recovery and, although smaller companies are very strong so we benefit from that effect, we get left behind by the recovery into more cyclical stocks,’ he said. ‘Quite often this happens in January. Why is there this seasonal effect? It’s difficult to pin down. You could argue investors like to back stocks that have done less well and are looking to refresh their portfolio.’

Nimmo was sceptical about the longevity of the rally in cyclicals. ‘I think there are still a good many issues and I don’t think we are going to go back to 2%-3% plus GDP growth in the UK any time soon,’ he said. ‘So we may see a cyclical rally for a few months but when these stocks move sharply, investors will question where they are sustainable with good visibility.’

Strong performer

Over the long term, the trust has trounced the benchmark, returning 158.1% on the shares and 111.5% on the net asset value (NAV) over five years, compared with 25.5% for the FTSE SmallCap (ex Inv Cos) index. The trust also strongly outperformed the UK Smaller Companies fund, Nimmo’s £1 billion open-ended investment company, which returned 65.4% over five years.

Stocks in the investment trust that have been weak recently, missing the rally, include property website Rightmove, protein research tool supplier Abcam and data supplier Telecity.

Nimmo’s star pick is Asos, the online fashion brand, up by around 40% since last autumn. Ted Baker and Sports Direct have also performed well.

‘Asos has performed well, even when economic conditions had been poor,’ said Nimmo. ‘One of our raisons d’être is to find stocks that have been consistent and can ride out economic downturns and grow regardless.’

Recent additions to the trust include Quintain Estates, engineering services company James Fisher, Group and Amerisur Resources, a Colombian oil and gas company.

Adviser View

Christopher Rowe, Independent financial adviser, Worldwide Financial Planning

If we can use a trust where we know the manager and the process involved, we’re a lot more comfortable, and this trust is a prime example. I have met the manager, Harry Nimmo. He’s softly spoken and massively intelligent.

We’re big followers of the unit trust version and have a good relationship with Standard Life. It’s a good place to start, and if you look under the bonnet, it’s a cracking fund.

While the unit trust soft closed in the summer due to its size, the trust is small enough to take positions in companies the unit trust can’t hold. A lot of the outperformance has come from a couple of satellite bolt-ons.

Nimmo can gear up to 25% if he takes a positive view. Historically, it has run at 10% and was around 5% during the summer. If you have to recommend something with this additional level of risk built in, I’m more comfortable with a fund that’s not operating at the maximum gearing level.

It’s suitable for clients who have a better understanding of how these things work. The trust has outperformed over one, three and five years.

Analyst's View

Stephen Peters, Investment analyst, Charles Stanley

Harry Nimmo’s is one of the best-performing trusts in the smaller companies sector. Over 10 years his price return leads by some way. The next is BlackRock Smaller Companies.

Nimmo has a brilliant long-term performance, although the net asset value (NAV) in comparison with peers has come off a little. The NAV over three years is up 86.5%, which is a little behind Henderson Smaller Companies and BlackRock, but it’s still well in excess of the benchmark.

Buying growth stocks has done exceptionally well in small caps over the past five years: it’s his style. The same applies to other growth managers, such as BlackRock and Montanaro. The others that have not done so well are more value oriented.

The only issue would be with the growth style: if that reverses, Nimmo will be left behind.

The trust is yielding 1.3% but, interestingly, if you want yield, you could buy the convertible loan stock at 3.5% and you get the right to buy the fund at a later date.

Nimmo’s trust is running on a premium compared with the rest of the sector, which is on a discount.

It’s less attractive now than it was, but by no means is it a ‘sell’.