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Harry Nimmo: Why I’ve sold completely out of ASOS

26 June 2014

The star small cap manager recently told FE Trustnet that the AIM-listed company was his best ever investment, but it has had a severe fall from grace in recent months.

By Daniel Lanyon,

Reporter, FE Trustnet

The wave of negative sentiment towards online fashion retailer ASOS has led Harry Nimmo to sell fully out of the stock, just months after he told FE Trustnet it was his best ever investment.

Once the darling of the stock market, ASOS shares have taken a significant tumble since February 2014, with earnings downgrades sending it plummeting more than 50 per cent year-to-date.

ALT_TAG Nimmo (pictured) ways that whilst he may buy back into the stock at a later date, he has taken profits in his in his £1.25bn Standard Life UK Smaller Companies fund, and will wait until the company overcomes its ongoing problems.

“It is a stock we have held for many, many years but we have completed a period of selling out of it in the past two weeks. We began selling it a few years ago but have now finally sold out,” he said.

“We bought it back in 2006 and at one stage – around 2008 – had about 10.7 per cent of the company, but we have sold around £50m of shares in 2014 at an average price of £46.”

“Some we sold at £70, some at £60, £50, £40 and even some in the £30s.”

The stock is currently trading at around £30 a share.

Performance of stock and index in 2014

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Source: FE Analytics

“Things changed in about February when it had an earnings statement that was a bit less than we were expecting,” the FE Alpha Manager continued.

“There was a bit lacklustre pricing momentum and earnings revisions started to tail a bit and valuations were still poor so we sold on the back of that.”

Nimmo has also sold out of his entire stake in his Standard Life UK Smaller Companies trust.

ASOS has typically had close to a 5 per cent position in both his fund and trust. Nimmo has always said he was reluctant to hold more than this figure, making him a forced seller in recent years as the stock has performed so well.

He has been an active seller throughout 2014, but the stock’s dire performance has led to his poor absolute and relative performance year-to-date; FE data shows Standard Life UK Smaller Companies has lost 10.54 per cent, while the IMA UK Smaller Companies sector average is down 1.66 per cent.


Performance of fund and sector in 2014

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Source: FE Analytics

Nimmo says it is conceivable he could buy back into ASOS, though he does think there are big headwinds facing management at present.

“ASOS is a very good company and it will recover. It is undergoing growing pains to build up its infrastructure such as distribution warehouses outside the UK,” he explained.

“This has meant it has had double running costs and has had to rebase their operating margins and growth rate.”

“However, I have no doubt that it will overcome its issues and we may look at it again at some stage.”

ASOS warned in a recent trading update that it would have to cut profit targets due to declining operations in international markets, together with an appreciation in sterling.

At the beginning of April, it also issued another warning that profits would be lower than expected. The half-year results, released on 2 April 2013, reported pre-tax profits were down more than 20 per cent, to £20.1m.

Nimmo only invests initially in small caps, but is renowned for hanging onto its winners – even when they enter the FTSE 250 or even the FTSE 100.

ASOS is listed on AIM, but with a market cap of £2.5bn, would be big enough to challenge the 100 biggest companies for size. Because of this, Nimmo says it is unlikely that he will buy back into it unless it suffers even larger falls.

“The problem with the company is that it is now so large despite it coming off quite a lot recently. It would have to fall quite a lot before we could buy back in,” he added.

In spite of the recent falls, ASOS has been one of the best performing UK stocks post-financial crisis, rising more than 640 per cent over a five year period.

Since it was first brought to market, it has returned an incredible 12,195.69 per cent, but as the graph above shows, investors would have made much more if they’d sold at the beginning of the year.

Performance of stock and index since Oct 2001

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Source: FE Analytics


Nimmo told FE Trustnet in March 2013 that buying into the company at 80p was far and away the best investment decision he has ever made.

While the Standard Life fund has suffered this year, over the longer term the fund has shown strong outperformance. Since the fund was launched in February 1997 it has returned 739. 23 per cent, almost doubling the return of the IMA UK Smaller Companies sector average.

Nimmo will talk more about the performance of his fund and trust and his outlook for the small cap market in an upcoming FE Trustnet article.


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.