"I'm surprised there's not been more IPO activity of late, as it is the market for it. I would speculate that the reason there haven't been more launches is that investment banks have managed the few launches we have seen quite poorly," he said.
"Promethean World and Occado are both trading well below their flotation price, so it's no wonder IPO sponsors are thinking twice about bringing companies to market," he added.
The Old Mutual manager is not expecting a surge of mergers and acquisitions amongst smaller companies, saying it is more the domain of mid-cap companies.
He said: "The natural buyers at the moment are large international companies with strong balance sheets, bidding for medium-sized companies. There have been approximately 12 bids on FTSE 250 companies this year, and I would expect that trend to continue."
Nickols focuses more on the Hoare Govett Smaller Companies index than AIM, but says AIM makes up 13 per cent of his portfolio. He said the Hoare Govett index offers the fund more flexibility, and restricting himself to AIM would present liquidity issues for a fund of his size – the Old Mutual UK Select Smaller Companies fund which he manages has £432m of assets under management.
Performance of small cap indices vs large cap indices over 1-yr
Source: Financial Express Analytics
Financial Express data shows small caps outperforming their large cap counterparts over a one year period. The manager points particularly to smaller resources companies as top performers, as equity markets elsewhere struggle.
He said: "AIM has been performing very well of late – better than other UK indices. The market is increasingly looking for the undiscovered story, and AIM is where you can expect to find that."
Performance of Daniel Nickols vs peer group, sector vs fund over 3-yrs
Source: Financial Express Analytics
Financial Express data shows Nickols' fund outperformed its IMA UK Smaller Companies sector over a three year period; the sector made a loss of 5.6 per cent, while the fund returned 4.4 per cent to investors in the three years to 1 October.
The fund took on the same amount of risk as its sector in the period to achieve those returns. Going forwards, the manager says he is cautiously optimistic, and doesn't think the UK is facing a double dip.
However, he is not afraid to shake up the fund if the macro situation changes. "We're unashamedly active managers, with around 150 per cent turnover – 75 per cent in and out. That's how we keep tight risk control on the fund," he said.