Small firm fund that seeks big gains is up 60%

INVESTING in shares listed on the Alternative Investment Market (AIM) provides a chance to participate in the success of some of the country’s – indeed, the world’s – fastest growing companies. The likes of drinks mixer producer Fever–Tree and online f a s hi o n r e t a i l e r s Asos a nd Boohoo. But it’s not without risk.

For every success story such as Fever-Tree – its share price is up by 265 per cent over the past five years – there is a failure like high street café chain Patisserie Valerie, which collapsed into administration in 2019, leaving investors holding worthless shares.

It explains why many prefer to invest in such businesses through a smaller companies investment fund that has exposure to a broad portfolio of firms, some of which are listed on AIM.

The top performing UK smaller companies fund over the past year – P r e mi e r Mit o n UK Smaller Companies – has 65 per cent of its portfolio invested in companies that form the FTSE AIM All- Share Index. It has delivered a rousing return of nearly 95 per cent.

As its name indicates, Stonehage Fleming AIM is a s maller companies fund primari l y f ocused on AIM-listed stocks. Although it hasn’t matched Premier Miton’s returns, it has still recorded a one-year return of 60 per cent. By comparison, the index has risen by 38 per cent. The £135 million fund is jointly managed by Nick Burchett and Paul Mumford, who constantly scour AIM for investment opportunities, analysing daily regulatory news service (RNS) announcements on companies they are either interested in or already invested in. They also devour any brokers’ comments on companies that they are keeping an eye on.

‘It’s such an exciting market to be invested in,’ says Mumford. ‘It’s about looking under the bonnet of companies and speaking to brokers and the management of companies you’re invested in.’

He adds: ‘Unlike FTSE100 companies where access to senior people is nigh on impossible, we can pick up the phone and usually speak straightaway to any of the directors who run the businesses we have a stake in. Sometimes, we even help companies become better businesses by giving them some advice.’

The managers are also keen advocates of ‘ capital market days’ where companies make presentations about their businesses and investors can ask questions. These are now often conducted via Zoom although before the pandemic struck, they would often involve a visit to a factory. ‘Nick likes to kick tyres,’ says Mumford. ‘Just by visiting a company site and seeing how the management and workforce interact, you can get a good feel for how a business is run.’

The Stonehage Fleming AIM fund is invested across 70 companies – a strategy designed to minimise any losses if a particular holding turns sour (it was an investor in Patisserie Valerie). Certain sectors of the market tend to be avoided for risk reasons, such as mining, financials, biotech and hotels. The managers are also not keen on c o mpani e s that j o i n AI M from overseas. ‘A lot can go wrong,’ says Mumford.

Recent additions to the portfolio include robotics company Blue Prism and property business Hargreaves Services. The biggest holding is healthcare company Totally, which accounts for 3.7 per cent of the fund. ‘It’s rare for a holding to account for more than five per cent of the portfolio,’ says Mumford, ‘but we do like to run with our winners.’

The fund’s ongoing annual charge is 0.68 per cent and the s t ock market i dentifi cati on number is B0JX3Z5. Stonehage Fleming is a wealth manager that looks after the financial interests of wealthy families.