According to FE Analytics, the fund has been the third best performing portfolio in the IMA UK Smaller Companies sector since inception with returns of 725.37 per cent, more than doubling the sector’s average gain in the process.
Performance of fund versus sector since Jan 1997
Source: FE Analytics
Nimmo’s fund also boasts top quartile returns over 10 years and has comfortably beaten the sector over five and seven-year periods.
It has, however, struggled over recent years. This won’t come as too much of surprise to many, given that Nimmo (pictured) has described the fund as the most the “consistent” around as it will always lag in a strongly rising market – which is what smaller companies have been through since 2012. However, an issue which may have the alarm bells sounding is the fund’s performance in this year’s difficult market in which small-caps have borne the brunt of negative sentiment.
Our data shows it ranks 51 out of 53 in the sector year to date with losses of 11.78 per cent. Though the sector has also lost money, it is only down 4.17 per cent.
Performance of fund versus sector in 2014
Source: FE Analytics
Nimmo, who is a genuine growth investor, explained his recent underperformance to FE Trustnet in the summer and attributed the fund’s losses to indiscriminate selling within the FTSE 250 index – a part of the market which makes up 57.6 per cent of his total assets under management (AUM).
However, given that he has a proven ability of outperforming and industry experts say investors can be successful by looking at areas which are currently out of favour, is now the time to take another look at Nimmo’s fund?
Square Mile, the fund ratings agency, thinks so. They have awarded the fund with their highest AAA rating due to Nimmo’s tried and tested approach to the market.
“This is a fund with an impressive pedigree, having had the same manager at the helm since its inception in the late 1990s,” Square Mile said.
“In a volatile and generally less researched asset class such as this, experience and sound judgement are crucial, two virtues that Mr Nimmo has in abundance. Mr Nimmo favours quality, growing companies that have the ability, or potential, to be future leaders in their fields.”
“This can, however, lead to periods of trickier performance versus the benchmark, especially if this investment style is out of favour. In aggressive up markets, for example, this fund would be likely to lag.”
“In essence this is an extremely credible investment proposition for investors looking for longer term exposure to the smaller echelons of the UK market.”
Ben Willis, head of research at Whitechurch, agrees that now is a good entry point for long-term investors.
“It’s one that if you are buying and holding for the long term – as it’s always going to have periods of weak performance but has an excellent long-term track record – then it is an attractive option,” Willis said.
However, he says investors need to be aware of the now £1.2bn size of the fund.
Standard Life had closed the fund in 2011 when it grew to £1.1bn as Nimmo didn’t want the surging AUM to affect his process, but the group re-opened the portfolio on certain platforms earlier this year.
“The problem for us is that it was open and then it was closed and has now been opened again. For regular investors like us, that causes a real headache,” Willis said.
“Also, because of the size of the fund, it’s hard to know what you are getting. Though it has smaller companies in its name, you are not really getting a smaller companies fund as Nimmo holds a lot of mid-caps and even some FTSE 100 names, though that is because he likes to run his winners.”
“However, if you are happy with that and you are willing to buy and hold, you won’t go too far wrong with Harry Nimmo.”
Willis says investors shouldn’t be overly concerned about the fund’s performance this year either as though it hasn’t performed in the way which you might expect, that has been down to stock specific issues more than anything else.
“I suppose it comes down to how he responds to the recent underperformance, but you don’t become a bad fund manager overnight and I think he has just been unfortunate with his stock selection.”
One stock which was a real detractor for the fund earlier in the year was ASOS, which following lower than expected earnings growth is down more than 50 per cent year to date.
Performance of stock versus index in 2014
Source: FE Analytics
Nimmo did completely exit his position in the online retailer earlier this year, however. Other top 10 holdings within the fund, such as Telecom Plus, Rightmove and Supergroup, have also had difficult years so far in 2014 as all three are down more than 20 per cent.
Despite Willis’ positive outlook for the fund, Mike Deverell – investment manager at Equilibrium – is avoiding the fund as it doesn’t really fit into the small-cap mould anymore.
“I like smaller companies at the moment, especially after the recent wobble in the market,” Deverell said.
“However, my concern is that it isn’t really a small-cap fund anymore as he has around 60 per cent in what I would define as mid-caps. I think that the size of the fund, unless you do what Marlborough do and hold hundreds of stocks, means that he has to look further up the market cap spectrum.”
Data from FE Analytics shows, for example, that eight of Nimmo’s top 10 holdings are members of the FTSE 250 index and the manager also holds around 2 per cent in the FTSE 100.
The manager’s argument against his index weightings is that he sees no issue with “running his winners”. Nimmo says that as he is a growth investor, he wants to hold companies that are growing instead of simply selling because a top performing stock is no longer in the small-cap index.
Willis sees both sides of this argument. He says Nimmo is fully within his rights to run his winners but agrees that it is no longer an out-and-out smaller companies fund and therefore investors should realise that if they buy now, they aren’t getting the same portfolio of 10 years ago.
Standard Life UK Smaller Companies is available on a number of fund platforms and has ongoing charges of 0.9 per cent.
