11 December 2019
Launched by First State Investments in 1998, Amati Global Investors’ Founder and CEO, Dr Paul Jourdan, has been managing the TB Amati UK Smaller Companies Fund since August 2000 i.e. for more than 19 years. Today he co-manages the Fund with David Stevenson and Anna Macdonald, who joined the firm in 2012 and 2018 respectively.
This month the Fund celebrates its 21st birthday, prompting Paul to reflect on his tenure of the Fund.
It has been an incredible journey and a great privilege managing this fund since the Autumn of 2000, a time when the market was still head-spun from the dotcom boom. I remember one promoter who placed adverts almost daily in the papers saying, “Buy internets on every dip”.
The first two years were all about finding a pathway through the recession which followed the dotcom boom, and in 2001 I had my first experience of full-scale fraud in a company I had inherited. I had scratched my head about e-District, the only internet stock on the market to trade on a p/e below 10x but hadn’t been quick enough to put all the pieces of the puzzle together. In 2002 we found a couple of holdings which were operating in unrelated and uncorrelated niche markets that had collapsed earlier and were picking up earlier, and these holdings helped a great deal in what was a down year, overshadowed by the build up to the second Iraq war.
The outbreak of war in March 2003 marked the bottom of the market. Acting on instinct, and responding to what were very low prices, we had positioned the Fund with exposure to some fabulous businesses which had sold off purely because they were small. The best example was Synergy Healthcare, which became a 4% position in the Fund in February 2003, at around 110p per share. The Fund wasn’t huge, so we could only buy the stock when we found a co-investor who could share the clear-out trade.
In the period 2004-5 I made the classic mistake of selling some holdings, bought at great prices in the downturn, far too early – Synergy Healthcare included. Synergy was eventually acquired by Steris for £19.50 per share in 2015. All I had to do was not sell it! It was a trade I learned a good deal from when it came to the recovery period post March 2009, following the great financial crisis.
Douglas Lawson and I ran the Fund when we started Amati Global Investors in 2010, becoming a team of three when David joined us. The period since has been an extraordinarily fruitful one for UK smaller company investors. We describe it as the “implementation phase”, (a term borrowed from Carlotta Pirez) of the digital industrial revolution. It is during this period that the great promise of the dotcom boom has been broadly realised, and the UK, with its deep pool of leading universities combined with ever improving access to capital via government backed initiatives like VCTs and EIS, has excelled.
Amati recognises a need for ‘through the cycle investing’ and seeks for the TB Amati UK Smaller Companies Fund to be, as far as possible, a fund for all seasons. We adjust the positioning of the portfolio over time to keep a focus on the best investment propositions we can find, taking into account the underlying macro-economic and political risks and industry trends present, as well as the specific circumstances of individual companies. The aim is to produce a savings vehicle providing actively managed exposure to this dynamic segment of the stock market, which has proven itself capable of delivering superior long-term returns in the past (based on the data from the Numis Smaller Companies Index study published annually by Elroy Dimson and Paul Marsh), whilst targeting lower than average volatility when compared with our peers.
The Fund's current portfolio has significant exposure to companies capitalised at £1bn and below – a segment of the UK market populated by poorly researched stocks at attractive valuations, offering the greatest opportunities for active investment management.
As we all head to the polls, we hope that UK quoted smaller companies will continue to offer the incredible array of innovation and entrepreneurialism over the next 21 years that we have seen over the last!