The £25m Saracen Growth fund has been managed by Craig Yeaman since 2009, and it has certainly fulfilled the criteria of being small and mighty over his tenure, having returned 142.77 per cent. This is an outperformance of 25.13 and 41.69 percentage points of its sector average and its FTSE All Share benchmark respectively.
Performance of fund vs sector and benchmark over management tenure
Source: FE Analytics
The manager (pictured) attributes this to stock selection, as he adopts a bottom-up value approach and ensures his portfolio of 31 holdings is well-diversified. 
Currently, the fund has a 49 per cent weighting in small-caps, 32 per cent in mid-caps and 18 per cent in the FTSE 100, although Yeaman says that this positioning is not deliberate and is simply down to seeing value in the stocks that he holds.
As such, FE Trustnet explores some of the UK stocks across the market cap spectrum that the manager expects to deliver superior growth over the long term.
M J Gleeson Group
M J Gleeson Group, which has a market cap of £269.29m, is a construction company that specialises in land development and urban regeneration. It is based in Fleet, Hampshire and has two public-facing entities: Gleeson Homes and Gleeson Capital Solutions.
“We first bought [the stock] at around £1.40 per share back in 2012 and it’s currently trading at £4.90, but we still think that Gleeson looks exceptional value because we think the operating margins can increase from here,” Yeaman said.
“The number of houses they’re building is still going to increase markedly from here and it’s trading at a very reasonable valuation. It has cash roughly £16m of cash on its balance sheet, and in addition it’s got a land bank of approximately seven years, so it has future-proofed itself.”
It is Saracen Growth’s largest holding, accounting for 7.3 per cent of the portfolio, and has significantly boosted its performance over the past five years to outperform the FTSE Small Cap index by more than five times.
Performance of stock vs index over 5yrs
Source: FE Analytics
M J Gleeson Group has a P/E ratio of 22.03 times, a dividend yield of 1.99 per cent and has £53.7m shares in issue.
Pets at Home
Pets at Home is the UK’s largest pet supply retailer, and currently has 370 stores and 6,000 employees. In 1999, it bought its largest competitor Petsmart UK and is now £1.4bn in size following its IPO earlier this year, making it a constituent of the FTSE 250 index.
The stock was added to Saracen Growth just last month, and was selected because Yeaman says it is a “category killer” and in a very strong position.
“Interestingly, it has a veterinary arm to it and it’s going to increase its number of veterinary practices both internally in its stores and externally as stand-alone practices,” he said.
“In addition to that, it has a large services arm which involves pet groomers, and that’s going to provide years of growth. What we also like about Pets at Home is that they have a large management stake.”
Since the company came to market in March 2014, is has returned 20.81 per cent, more than doubling the performance of its index.
Performance of stock vs index since IPO
Source: FE Analytics
Pets at Home has a P/E ratio of 19.45 times and a total of £500m shares in issue.
Rio Tinto
£48bn mining giant Rio Tinto is a British-Australian company that is chiefly based in London, but also has a management office in Melbourne.
It won’t have escaped investors that the mining sector has fallen hugely out of favour over the last year due to the oversupply of commodities such as copper and iron ore, along with concerns about the future of China’s economic growth.
Despite this, Yeaman bought into the stock for the first time last month, making it the first mining stock that the Saracen Growth fund has held in seven years.
“Rio Tinto has a very strong balance sheet, so the gearing of the company remains at the bottom of its own target range of 20 to 30 per cent,” he said.
“Also, while commodity prices have been falling sharply, it is still on a very high margin at 38 per cent. The management increased the company’s interim dividend by 12 per cent, recently so that’s a very positive indication for future prospects.”
Currently, Rio Tinto is yielding 6.2 per cent, and Yeaman expects this dividend to remain strong throughout next year.
“Yes, we probably haven’t bought at the bottom but we think it’s a very attractive entry level for us, hence the reason we initiated the position,” he added.
Over the last year, the company has lost 18.85 per cent compared to the FTSE 100’s return of 1.08 per cent. Over the longer term, however, it has outperformed the index by 106.35 per cent since shares were first issued in 1995, having returned 375.89 per cent.
Performance of stock vs index since share launch
Source: FE Analytics
Rio Tinto has a P/E ratio of 6.71x and £1.4bn’s worth of shares in issue.
