His latest investment, which was finalised just this afternoon, is a company called STM Group, a £15m financial solutions company based in Jersey.
Williams, who has bought 20 per cent of the company, said: “This is hot news as we traded today. It’s a very small company and it’s got cash on the balance sheet.”
“It is one of the leaders in its industry, but it’s only the tiniest company. By way of example, if you take Shell and say it’s equivalent to the size of Everest, this company is probably about as high as this room.”
STM Group, which offer financial solutions for high net worth individuals, cross-border investors and expatriates and also has operations in Gibraltar and Malta, is appealing to Williams because of its huge potential for growth, as well as the fact that it’s out of the target range of most other fund managers.
“It’s really, really tiny, but in its own industry it’s a leader. Not only that, because it’s so tiny for companies like Aberdeen or BlackRock it’s never going to be big enough to move their needle,” he said.
“The size also means that, if we’re right, then hopefully we’ll make a heap of money out of it and our fund will do very well.”
“If you invest in companies such as BP or Shell, which may or may not go up depending on what the oil price does, they’re really unlikely to double or triple in value, whereas this firm absolutely could double or triple in time.”
The CF Miton UK Smaller Companies fund, which is co-managed by Williams and Martin Turner, has a 70 per cent weighting in companies under the £250m market cap.
“Many of the big companies aren’t growing very much and there seems to be a gap at the moment [in the market] which has opened up. This is why we’re particularly upbeat about the funds we’re running right now,” Williams explained.
“The stock market has gone up to 7,000 and it’s too easy to say ‘because it’s looking cheap, we’ll buy some more’. I think we should be prudent about taking risks. The danger is that people keep getting their rulers out and thinking it’s going to go on forever.”
“The stock market is spiky, so we shouldn’t assume that the spikiness has disappeared. It will turn up for whatever reason at some stage.”
The fund, which has 93 holdings, has outperformed its peers by 21.18 per cent since its launch, posting total returns of 65.04 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
Another small holding which Williams has increased his exposure to recently is International Greetings, a wrapping paper business based in Bedfordshire with several international subsidiaries.
“It’s one of the top three wrapping paper businesses in the world,” he explained. “It’s got a £44m market cap so it’s quite small, yet it does a £220m turnover. When you look under the bonnet, my goodness, it’s actually quite a big business.”
“It’s been racking up serious amounts of capex over the last two years. It’s built two new major printing plants: one in Holland, one in the UK. They’ve got one in the states as well.”
“The debt has gone up for this reason, but it’s now going to get the cash payback. It’s more productive than most of its competitors, so I think debt will fall very hard in the next two years and, as it does so, it will move onto the dividend list.”
Williams and Turner are particularly bullish on small companies which they believe, over time, will provide both growth and income.
“We look forward about 18 months to two years when making investment decisions – beyond that it’s hard to know,” Williams said.
“If you look back over the last two years, we’ve had all sorts of excitement. We’ve had elections, we’ve had QE arrive in Europe. You can’t always predict what’s going to happen.”
However, the fund manager accepts that small-cap companies don’t fare as well in times of financial hardship.
He said: “There’s more turnover in our portfolios in times of recession when many of the companies which have been growing enter a period of setback – we sell those and then we build up the companies that we think are more immune to difficult climates.”
This is one of a number of reasons that investors may be bearish on small-caps and micro-caps. Despite a previously strong performance, they have proved to be somewhat lack lustre over the last year.
Performance of sector vs FTSE All Share over 1yr
Source: FE Analytics
“For the past 20 years the AIM market has been fiddly and small,” Williams admitted. “You’ve been able to make very good returns for investors without having any small companies, so bigger investors have gotten out of the habit.”
“If you look in the rear view mirror, there is nothing about small companies which is very exciting. But, looking forward, if world market returns are going to be much less, then the opportunity for adding value in a whole universe of stocks which are not that well-researched, in which the price and efficiency is greater, means you can actually have the opportunity of making good returns, but you can’t do that within an unlimited size.”
CF Miton UK Smaller Companies fund’s top holding is Conygar Investment Company, a property investment and development group worth £300m.
“We’ve got a 3.7 per cent weighting, so we’re pretty ‘up’ on this firm. We really hate debt generally, we try and veer away from debt in corporates,” he said.
“But in the last few years [the company’s] been working hard to build some new projects, and it’s in this current year when we think a good part of its value will start to become obvious.”
“The problem with many of these companies is they’ve already gone up a degree. Conygar has gone up but we think there’s plenty more upside. Some of these others have already gone up quite a long way so we’ve taken some profits on them.”