Veteran small-cap fund manager Harry Nimmo, who heads the Standard Life Investment UK Smaller Companies fund and Standard Life UK Smaller Companies investment trust, has been finding some of his best current holdings in names he once held but has long sold due to a prolonged period of weakness.
According to FE Analytics, his trust has been the best performing portfolio in the IT UK Smaller Companies sector since Nimmo launched it in 2003 with returns of 667.62 per cent, beating the closest rival by more than 110 percentage points and its benchmark – the Numis Smaller Companies ex IT index – by more than 360 percentage points.
Performance of fund versus sector and index since Sept 2003
Source: FE Analytics
The open-ended fund also has a strong track record over the longer term, being the fifth best performing portfolio in the IA UK All Companies sector out of 36 over 10 years and third best since 1997 when he launched it, being beaten only by fellow FE Alpha Managers Giles Hargreave and Simon Knott.
While the manager is not typically seen as having a recovery style, he has been piling into some ‘special situations’ stories which have been rallying in 2015 so far but have all suffered somewhat in the more recent weakness.
“A number of stocks that had been in the fund before that we have since sold have come back in over recent months. They are old favourites, [mostly] low risk firms and some might say dull stocks that have had a lot of rejuvenation. They are perfect for markets that are in turmoil. They are UK-orientated in the most and have done pretty well since we bought back in,” Nimmo said.
Here the manager tells us what he is buying and why.
Greggs
Nimmo says this is one of his favourite stocks, having bought it recently after selling it several years ago.
“It is partly a new chief executive that came on board a couple of years ago. Five years ago we really thought Greggs had lost its way and they went through a couple of chief executives. When I met the current guy I didn't really feel he would make the difference because the problem with this company was a little bit severe in a very competitive market,” Nimmo said.
“However, he has really sorted out the ranging, the style of store and he has benefited from lower commodity prices be that food or energy and regenerated the new store opening programme which has gone a lot more into roadside service areas.”
Sausage roll purveyor Greggs went through a difficult three years from 2011 until last year as its rivals ate up its market share and the retailer saw declining sales, a period where the firm consistently blamed the effect of unseasonal weather.
However, this year it has seen its stock soar, gaining 60.66 per cent while the broader mid-cap market has risen about 5 per cent.
Performance of stock and index in 2015
Source: FE Analytics
“They are about a quarter of the way through an improvement programme that is really coming through in terms of the numbers. The last couple of sets of results have been significantly ahead of expectations and they even had a special dividend because they had so much more cash than they needed,” he added.
“They have also moved into breakfasts in a big way with their £2 bacon roll and coffee offer. They are actually the largest coffee seller in the UK. It is 90 per cent as good as Costa and costs half the price.”
JD Sports
JD Sports is one of Nimmo’s most recent purchases, buying back in the last few months – three weeks after its latest results.
“They gave an impromptu trading statement to say they are currently going to come out with results materially ahead of expectations, which is very unusual,” he said.
“It is also starting to make progress in continental Europe – Spain, France and Germany. It is also turning around its outdoor units such as Blacks.”
The share price for this sports clothing retailer has had one of its best years on record thanks to better than expected trading in last year’s Christmas period as well for 2015 so far.
The stock has risen by 67.32 per cent in 2015 and unlike Greggs has only seen a small dip since the recent sell-off.
Performance of stock and index in 2015
Source: FE Analytics
Domino’s Pizza
Domino’s Pizza is now peddling its pizzas across four geographical regions: the United Kingdom, Ireland, Germany and Switzerland, owning more than 900 stores although most of these – about 800 – are in the UK.
Nimmo said: “It has also had a very good set of results recently. Losses are reducing in Germany and they have had good opening programme. They are the kings of home delivery. It is a pretty predictable set of businesses. These are not that risky but are growing, comparably quickly.”
In part due to this expansion, the firm saw sales rise 14 per cent in the second quarter of 2015, nudging it to a more than 25 per cent rally this year.
Performance of stock and index in 2015
Source: FE Analytics
