THE RELATIVE long-term outperformance of smaller companies compared to larger ones has helped the manager of the Standard Life Investments Global Smaller Companies Fund climb the rankings in The Herald’s league table of Scottish fund managers in the past few months.
Alan Rowsell, who previously ran the fund alongside Standard Life veteran Harry Nimmo but has been sole manager since last year, gained 10 places in the table between June and August and moved from an A to AA rating in the process.
The table is compiled by financial information group Citywire from its ranking of nearly 4,000 global managers and is based on three-year risk-adjusted performance.
Having ranked at position 1,794 in the global table in May, Mr Rowsell did not feature in the Scottish list that month but moved up into position 17 in June before being ranked eighth in July and seventh in August.
Noting that as the fund, which launched in January 2012, is coming up for its six-year anniversary, Mr Rowsell said its performance had been strong over that period because “it is smaller companies and they do outperform bigger companies over time”.
Although the universe he can pick from is made up of 6,000 companies, currently the portfolio contains just over 50 names.
Mr Rowsell said while there is “a lot of opportunity to tap into”, his goal is to “find the highest-quality emerging winners coming out of the bottom end of the market [by market cap]”.
To do this, he uses Aberdeen Standard Investments’ in-house screening tool to identify the companies that meet the fund’s quality, growth, momentum and valuation criteria, before the six members of the firm’s small cap investment team produce a list of around 100 companies that could potentially make it into the portfolio.
“The types of companies we are looking for are very rare and the global fund cherry picks from the best ideas of the team,” Mr Rowsell said.
Among the fund’s current top picks is American orthodontics business Align Technology, which makes transparent teeth aligners that do the same job of straightening teeth as traditional fixed metal braces while reducing embarrassment to the wearer.
“Many of us have had experience of fixed wire braces to straighten teeth but there’s now the option of a clear aligner, which is almost invisible and straightens the teeth in half the time,” Mr Rowsell said.
“Align Technology has been doing really well this year with teenagers. It used to be a parent’s decision but they have been very clever in marketing themselves via Facebook.”
Other best ideas that have made it into the fund are German forklift maker Jungheinrich and Chinese camera-lens manufacturer Sunny Optical.
The former is interesting, Mr Rowsell said, because it is tapping into the burgeoning world of e-commerce, with the company also making a range of products to be used in the warehouses used to store goods that are sold online.
“They supply a range of equipment, such as shelving and stacking machines, to enable the shift from bricks to clicks,” Mr Rowsell said.
Similarly, Sunny Optical is taking advantage of the growing use of cameras in both smartphones and cars, cornering the global market in the process according to Mr Rowsell.
“In cars many people have a reversing camera but they are increasingly having forward ones too to interpret road conditions and also for autonomous driving,” he said. “They are number one in the world at making lenses for that application.
“Even though businesses are small caps they are often global businesses and market leaders in what they do but their niche is small.
“It’s a misnomer that they are small businesses.”
Although the fund is constructed solely through bottom-up stock picking, Mr Rowsell said thanks to its current positions it is currently underweight in the US and overweight in Europe.
This is because US companies have been affected by the country “having its recovery earlier and that is now maturing”, Mr Rowsell said.
Similarly, the fund currently has a bias to technology and healthcare companies but little exposure to utilities or telecoms.
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