Daniel Nickols Interview: On the hunt for small-cap growth
Daniel Nickols has been running the Old Mutual UK Smaller Companies Fund since January 2004. In that time he’s forged a reputation for adept stock-picking in both up and down markets. Indeed, his £1 billion fund is one of the best performing in its sector over the past five years, with a 122.4 percent cumulative return.
Daniel and his team of seven portfolio managers and analysts hold around 100 positions in the fund. And while he insists he’s largely agnostic as far as investment style goes, he’s clearly focused on hunting down explosive small-cap growth shares.
Fast growing smaller companies can be highly rewarding yet extremely perilous investments. Navigating this terrain has been a career-long specialism for Daniel, who speaks with an air of calm but also deep enthusiasm for the types of companies in this part of the market.
One of the eye-catching features of his approach that he’s previously tilted the fund allocation based on his assessment of the economy (and its future direction). So at times it has been positioned using top-down and bottom-up analysis.
But Daniel is very much a stock-picker. And from that perspective - as he explains - his team are looking for three key attributes in a stock. What ties those attributes together is the view among many investors that small-caps just don’t get enough research coverage. Using that as a starting point it’s possible to study forecasts and find errors and likely areas where the market is underestimating companies. With a process for doing that, Daniel’s successfully built a fund for all conditions...
Daniel, the Old Mutual UK Smaller Companies Fund has been very successful over a long period. At over £1bn, how challenging is it to manage a small-cap fund of that size?
With small-caps, it’s as much art as it is science. In terms of managing the number of positions, over time we’ve typically had between 90 and 110 within the smaller companies portfolio. That range of holdings has been more a function of just trial and error and experience than a scientifically targeted number.
I would readily admit that I’ve benefitted massively from having a great team around me all through my career at Old Mutual, and not least my former boss, Ashton Bradbury. He left the business at the end of 2014 and I owe…
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7 Comments on this Article show/hide all
It would have been interesting to know if during some temporary downside they lend their holdings to short sellers.
Isn't that a useful thing to know? Also, I will go with Paul and avoid Blue Prism - where is the cash-based earnings here?
Ben,
Interesting interview with a fund manager who has done very well over the last 5 years. I see that their Top 10% holdings are largely growth/momentum companies, that have done well in recent times. Perhaps another notable case of small company Buy high/Sell higher. Ian
FEVERTREE DRINKS PLC 4.7
PAYSAFE GROUP PLC 4.0
ASCENTIAL PLC 3.9
BOOHOO.COM PLC 3.9
CLINIGEN GROUP PLC 2.5
MICRO FOCUS INT 2.5
JOHNSON SERVI ORD 2.4
RESTORE PLC 2.3
SMART METERING SYST 2.3
ONESAVINGS BANK PLC 2.2
Total 30.7%
Good article. Who's Paul and Ben for that matter?
johno,
I deplore the first name only familiarity that politicians seem to automatically use now, such as 'Jeremy said to John about Teresa'. I guess it is meant to denote that they are all part of the 'In Crowd'. However FYI a quick spin of the mouse wheel to the top of the page shows Ben to probably be Ben Hodson of Stocko (that's Stockopedia) and Paul to be Paul Scott a regular contributor to same. HTH,
Garth Nicholson
I use AIM shares in attempt to mitigate IHT.
Could comments about a particular AIM share indicate if they qualify for Business Property Relief (BPR).
In reply to post #200807
Hi - the guidance on this is notoriously muddy ! It's tricky for Stockopedia (or anyone for that matter) to offer a definitive list of AIM stocks that would qualify under the BPR rule. That's because HMRC only make a judgment on exemptions when the tax falls due.
You do hear people talk in broad terms about AIM stocks qualifying for BPR, but there are some known exemptions (which I'm sure you know). Anything investing passively in land or other assets is unlikely to count, neither will Reits, investment trusts, dual-listed stocks, or holdings in a fund. An investor also needs to hold the position for at least two years.
Beyond that, it's down to individual judgment I'm afraid.
In reply to post #200823
Thanks for that Ben.
Mrken.