Investors can be too easily seduced by spectacular returns in far-flung markets, but MAM’s managing director Williams says there is no need to go there – the UK is packed with hidden gems. Williams, who runs the CF Miton Multi Cap Income fund, says one of the greatest boons to UK investors is the AIM market, which he says is filled with some of the smallest – and therefore highest-growth – companies in the world.
His eyes light up as he speaks about his recent investment in Rangers Football Club.
Once one of the seats of Scottish football, and one of the most famous clubs in the world, Rangers went crashing to the basement after going into administration.
In 2012 it was relegated to the Scottish Third Division to fight it out with small-town clubs with four-figure attendances and semi-professional players.
Williams says with all its financial turmoil in the past, the club’s shares are an absolute steal.
"All the history of debt is gone and you’ve got a very, very commercially strong business," he said.
"The only thing we didn’t know was whether the fan base would stay, and they’ve absolutely stayed."
"It’s the fifth most well-attended football club in the country. More than Aston Villa and all of these others, and you think that’s just incredibly, fantastically good value for us to get involved in."
Wrote the book
The gregarious Williams, whose book Slow Finance is about investing in the UK, practices what he preaches, having campaigned for the removal of Stamp Duty on transactions from AIM-listed stocks when on the board of the Quoted Companies Alliance.
Perhaps Williams’ affinity for UK companies stems from his life as a traveller around the UK.
From roots as a farmer’s boy in south Wales, or the red bricks of North London, where he now lives with his wife and three children.
Perhaps it was his education at Liverpool University or a stint as an engineer that gave birth to a near 30-year investment career in UK small caps. Either way, they are part of his DNA.
He first joined Throgmorton Investment Management in 1985, where he specialised in UK smaller companies.
He also spent time at Principal Investment Management and Thornton Investment Management before joining County Natwest – later part of Gartmore, where he spent the bulk of his career. He has been managing director of MAM funds since 2011.
Beyond the plethora of smaller companies on offer in the UK, he says familiarity is an attractive reason to keep your investments close to home.
"The great advantage is of course it’s just on your doorstep so you know where it is, you know where the management team is, you get great access and you can make real assessments about whether or not they do have great prospects," he said.
"I think the key issue about investing in the UK is that you’ve got risks which you know about. That’s a great advantage."
"When you’re investing overseas there are all sorts of risks which you don’t know about and you can get caught out. Not just currency risk but all sorts of event risks."
Wider economy
While Williams could hardly be more positive about the potential hidden in UK companies, he is not so optimistic about the wider economy.
"I think the UK market has actually had a very good start to the year. It’s already appreciated significantly, but I do worry a little bit that in the last two years we have seen a couple of setbacks in the middle of the year," he said.
"I think there’s room for a setback. I don’t know what will cause it, whether it’s Europe or something to do with the Middle East or indeed the Far East with China and the worries over North Korea."
"There may be things that dislodge it along the way, so I don’t think we should be expecting the market just to move up in a straight line. I think there will be wobbles along the way."
With this view, the manager says investors shouldn’t expect the economy to drive returns in the near future.
"What we’ve got to do is find individual companies which have the opportunity of delivering growth in their own sub-sectors; sub-sectors that are expanding irrespective of the economy at large," he said.
Favour out-of-favour
He favours companies in out-of-favour sectors such as insurance and online gaming, while he takes a cautious view on the UK’s biggest income-paying stocks such as GlaxoSmithKline, Vodafone and AstraZeneca.
"Some of the biggest companies in [pharmaceuticals] generate lots of cash. But demand is in part related to government spend and government spend is under austerity at the moment, so it’s going to be difficult for those companies to grow as they have done in the past."
"The sector isn’t the most buoyant," he added.
Williams says he likes companies where a significant commercial advantage is being established; one of his all-time favourites is insurance services firm Quindell, which he believes has been unfairly dismissed by the market.
"The insurance sector has been a very good area. What I like about the insurance sector is that it’s been out of favour off and on for the last 20 years," he said.
Williams adds that many share prices haven’t risen in 25 years, but he expects to see much greater growth in the future.
The manager is in fact bullish about the financial sector as a whole.
"There are certain subsectors of the financial sector which could do pretty well," he said.
He tips personal debt financial services business Fairpoint, which he believes is poised for a spike in growth if and when interest rates move in the UK.
Distressed banking
However, his optimism doesn’t extend to the distressed banking sector, where he says high levels of debt and crippling regulation are stymieing the prospects of growing dividends.
"We’re not much exposed to banks because they’ve still got quite a lot of problems hanging over from the last credit boom," he said.
"We don’t see great scope for banks to start paying dividends again, apart from the ones that are already doing so."
Williams also likes the internet gaming industry, picking out online gambling companies 888.com and interactive TV gaming company NetPlay.
"Manufacturing generally is quite an attractive area," he added.
"It’s been underinvested in in the past and there are still some decent companies left in the UK. However, I do worry about the cost of raw materials rising in the UK."
Steering clear
One high-growth area Williams is steering clear of is the oil and gas sector, where high volatility means he can’t count on a steady stream of income.
"The problem with commodities generally is that they tend to have very spiky charts. Yes, they get fantastic rises and the oil price did get to $147 just before the credit crunch arrived, but it was $35 literally two quarters later."
"If you’re looking for sustained income and you’re looking to get away from the fragility of some of the markets, then that’s actually not the kind of thing we’re looking for."
He is also avoiding the debt-laden property sector.