Gervais Williams interview: Big ambitions for smaller companies

Friday, Apr 22 2016 by
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Gervais Williams interview  Big ambitions for smaller companies

Gervais Williams agreed to meet me for lunch at a brasserie around the corner from his offices in the shadow of St Paul’s Cathedral. From here it’s a stone’s throw to the London Stock Exchange on Paternoster Square. In his 30 year career in the City (he was an engineer before that) Gervais has been a huge advocate for investing in one of the exchange’s most exciting and occasionally controversial offshoots - the Alternative Investment Market - and it’s our main topic of conversation.

It’s not uncommon to come across fund managers with strong views about investing methodologies. But this is a man with utter conviction in the value of investing in smaller companies. They’ve been a regular source of outperformance for him: first during a long spell at Gartmore and now during five years as Managing Director of Miton Group plc. But more than that, in the aftermath of a protracted credit bubble, he predicts a certain resurgence for small-caps. He also believes that fund managers could and should be allocating more capital to the very best home-grown firms, not just for clients but for the sake of everyone.

Gervais, what’s does a regular day for you and your team at Miton look like?

Well, I take an hour’s walk to the office. The whole team meets to review results on the screen at 7.00am and there tends to be a lot of discussion about upgrades and downgrades. By around 9.00am we’re usually doing face-to-face meetings with corporates. Last month [March 2016], Miton, which includes my team as well as Europe and the US, did over 140 meetings with corporates.

The best part of the process is meeting companies and making decisions. We can use sophisticated models and pick up new trends coming through, but there is nothing better than talking to the companies themselves. I probably see more companies than anyone else, in between reviewing portfolios, meeting clients and looking at new challenges that are coming up.

You literally wrote the book - The Future is Small - on why smaller companies hold such strong investment appeal. Can you tell me about your thoughts on why that is?

As we all know, the long-term purpose of investing is to allocate our collective savings to the best and most productive companies. One of the problems is that when…

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13 Comments on this Article show/hide all

Howard Adams 22nd Apr '16 1 of 13

Ben

Interesting interview, thanks.

Given Gervais Williams's conviction with AIM and small caps generally, I was surprised you did not ask his views about what affects pre-Brexit and the two post-Brexit options might have in this universe. Did you by chance cover this topic at all?

Regards
Howard

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peterthegreat 22nd Apr '16 2 of 13

Interesting and worthwhile article. In respect to Howard's question I think we can safely say that Brexit would have less impact on Gervais William's universe of companies because they tend to be smaller and more domestically focused, although there are exceptions. Most fund managers, such as Neil Woodford, seem to think that UK companies will continue to prosper regardless of which way the vote goes. With respect to the interview, my only slight concern was Mr. Williams' implying that what he was doing was socially useful. While this may be true I hope social usefulness does not start influencing the way he invests otherwise he might end up like Neil Woodford with crazy investments in blue sky biotech companies which are impossible to analyse! One interesting point was the explanation of how difficult it can be for a fund to make or sell investments in small copanies because of liquidity issues. This puts small investors such as us at a significant advantage. Nevertheless I have quite a bit invested in Mr. Williams' Diverse Income Trust which has done well so I hope his success continues.

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ACounsell 22nd Apr '16 3 of 13

A FTSE 100 put option was mentioned as insurance by Gervais. I am concerned about impact of potential Brexit on my UK portfolio in short term so is it possible for individual investor to buy put option on UK all share index or does it have to be more specific (I.e FTSE 100) . Also what are the mechanics of doing it - there doesn't seem to be any information in public domain. Traded option prices used to be published in the financial press but this does not seem to happen any more.

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purpleski 22nd Apr '16 4 of 13

Like Acounsell I am interested in protecting the down side of my portfolio with the put option that Gervais mentions. This seems eminently sensible in the current market and very cheap. Can anybody shed any light on how a PI might do this?

Thank you.

Michael

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herbie47 22nd Apr '16 5 of 13
3

In reply to post #128801

If open an account with IG Group you can put a short on different indexes like the FT100 or FT250, you put on £x for each point, so if you put on £10 a point, if the FT100 falls 80 points you get £800, you can put on a stop loss as well, think you can only keep it for max of 3 months? Or you can buy a short like db X-trackers FTSE 100 Short Daily UCITS ETF (XUKS), you buy it under shares in HL account, can be in ISA, there are a few others as well.

I think the IG option is better. Best to open an account soon if you want to do it, in first few weeks they restrict how much you can put on, but £ 500 in your account you can place £10 on the FTSE 100, less on the FTSE 250 because its higher points, so probably £4. The FTSE 250 is probably better than the FTSE 100. Think they do the FTSE All Share as well, spread maybe wider though. Also overseas ones to. China might be a good one.

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purpleski 23rd Apr '16 6 of 13

In reply to post #128810

@herbie47. Thank you for this. I had heard of some of these. From you say though it sounds as though if the FTSE say moves the wrong way then you are open to lose more than just your initial purchase.

Gervais Williams seems to talk more in terms of something akin to house insurance. I pay £1 a £1,000 for my fire insurance and at the end of the year my £100,000 house has not burnt down and I have lost £100. I then insure again and so on.

I have writen to him and asked! He seems like the sort of guy who might reply.

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herbie47 23rd Apr '16 7 of 13
1

In reply to post #128825

I think he is referring to a spread option which is the IG one. You put on say £10 a point, if FT100 falls say 1,000 points which is about 16% you close it you will get £10,000. If it goes up say 500 points then yes you can lose £5,000 but as I said you can put on stop loss, I think the most on mine I could have lost was £500. But then if the market goes up then presume your portfolio goes up as well? Robbie Burns does the this type of spread.

The db bank is like a fund if the market falls it goes up but to cover your portfolio you are going to have to put in a lot of money in although there are leveraged products.

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BEN12358 23rd Apr '16 8 of 13
1

Hi

To hedge, I've bumped up my cash to 30%ish of my portfolio. If I have the nerve, I'll try to re-invest this around the week of the EU vote with companies who trade mostly within the UK or the Rest of the World (excl. EU)....on the other hand I might bottle it, forgo some possible profit, and see what the market says and the aftermath :0)

When we have visibility of the result however I think there may be a bull run, what-ever happens, just because the uncertainty has gone.

Good luck...

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cig 23rd Apr '16 9 of 13
1

In reply to post #128825

I suspect he's using regular options, probably these:
https://www.theice.com/products/38716770/FTSE-100-INDEX-OPTION

Daily prices are in the "end of day report" (product "ESX").

A 1% premium to the end of the year would buy you a strike price of about 4500 it seems (if the index is lower on the expiration date, it pays the difference between 4500 and the price, if it is lower, you lose your premium).

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purpleski 24th Apr '16 10 of 13

In reply to post #128846

Thanks cig. Interesting and seems simple. Hope I can find time to investigate.

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purpleski 24th Apr '16 11 of 13
3

Hi

Gervais replied to my email this morning which is impressive. His compliance team has not yet approved him posting on forums like this so I said I would not post his reply but if anybody is interested they can reach me on

m at purpleski.com

Michael

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xcity 24th Apr '16 12 of 13

In reply to post #128867

Sunday morning reply. Very impressive indeed.
I'd worry about his home life though.

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Chrisfarrell21 25th Apr '16 13 of 13

Sorry Ben, I got a bit over excited and gave you a thumbs down by mistake. Really good article, thanks.

Chris

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