Here are some of the highlights: Given your long and successful association with growth stocks, why have you chosen to manage an income trust?
GW: During the credit boom I felt I could make the best returns for my clients through investing in growth stocks. Over this period almost everything went up – equities of course, but also bonds, property, commodities, etc. This era is now over and I see new trends developing. Now I prefer companies with sizable cashflow that compound good and growing dividends over time. These stocks not only produce the best returns over the long-term but also do so with less price volatility.
If you could only invest in one stock at this present time, what would it be and why?
GW: I think right now it would be Fairpoint. It's a tiny stock with great upside potential and is in the growth area of rescheduling loans for over-indebted individuals through IVAs or rescheduling repayments. It is really undervalued at the moment, running on a PE of 5x with a 7 per cent yield and lots of positive news coming through. Fairpoint has a really strong balance sheet and has recently bought some of its own stock.
How does one control or monitor 80 to 100 small cap companies successfully? The cost must be very high.
GW: The trite answer is that we have to work a little harder. Most of our companies are not well researched so we do our own, which involves more of a challenge. Ultimately in my experience most share prices are driven by around three major factors. Normally a couple in one direction and one in the opposite. My analysis focuses upon identifying the factors that are likely to drive the price and how these will evolve ahead. This kind of process doesn't involve huge amounts of time for each company and leaves plenty of time to meet management. I tend to do over 400 face-to-face meetings with management teams each year.
Why are there no index-tracking funds in the UK Smaller Companies sector? Are we waiting in vain?
GW: Small caps are illiquid compared to large caps so it is difficult to buy or sell decent amounts of shares daily. For this reason it is difficult to successfully match a small cap index without incurring significant dealing costs.
If you had to trust your money with another investment professional other than yourself who would it be and why?
GW: In choosing just one I would need to decide what my objective was. I am apprehensive of uncertainties such as a potential euro breakup, US fiscal cliff, lack of Chinese growth etc. As a result I would generally be looking for someone running a portfolio that is well set for difficult conditions. The fund manager duo that stands out on these criteria are Martin Gray and James Sullivan. They happen to be colleagues at MAM but I make no apologies for that. I have worked with them so naturally I have the greatest confidence in those I know best. Small/micro cap stocks have been out of fashion for the last 25 years. Nearly everyone is out of the sector by now. They lost out badly last year when the market fell back, but this year they have outperformed. We are seeing increased interest in these stocks at a time when general market turnover is falling. I'm hopeful that this is the start of a sizable period of outperformance that I expect to last five to seven years.
At what fund size do you think a multi-cap income strategy may be compromised?
GW: The Diverse Income Trust is around £80m and the Acuim Multi Cap is standing at nearly £30m. I have said to investors that there will be a limit to the size of capital that can be managed using my strategy. Once our combined fund size reaches around £250m we will do a review and assess what the limit might be. This is complicated as I envisage many non dividend-paying small caps will pay dividends in the future. If that is the case then the investable universe may become considerably larger.
Were you expecting the UK GDP figures, released this week, to be this bad?
GW: Generally I am not expecting much help from the economy. My holdings have to be selected on that basis. Bad as it is here, there are plenty of economies that are looking much worse.
Are your smaller holdings more, or less, able to cope with what appears to be an endless recession?
GW: In fact some tiny stocks can sustain growth more easily than the larger companies. Smaller stocks can be more nimble and run around the feet of the majors. And some tiny stocks are exposed to new markets and sectors that are still underdeveloped.
The next live Twitter interview will take place on 8 August 2012 with Gary Potter and Rob Burdett who head up the multi-manager section at Thames River. If you would like to ask them a question, please post a comment at the bottom of the page, or email us on editorial@financialexpress.net.