Last year the fund, which had enjoyed a strong run for several years until performance started to dwindle in 2018, endured losses of 14.6% even as most UK ‘small-cap’ funds rallied. The fund was mired at the bottom of the Investment Association’s UK Smaller Companies sector, while rival funds delivered an average gain of 24.2%.
Over three years it has posted a loss of 6.6% versus an average gain of 38.7% for funds in the sector.
Investors have been voting with their feet. The strategy, which mainly invests in Alternative Investment Management (AIM)-listed stocks, peaked at around £199m in July 2018, but suffered £75m of withdrawals in 2019 alone, with another £9.5m pulled in January, according to Morningstar data. The fund’s size was estimated at just £47m yesterday.
This comes at a time of heightened focus on liquidity and managers’ ability to sell out of smaller companies to meet redemptions, following the collapse of the Woodford Equity Income fund, which featured a large weighting to unquoted companies and small, hard-to-trade stocks.
Williams insisted he was well-placed to meet withdrawals, however, and turn around the fund’s performance.
The veteran smaller company investor said he was confident his portfolio will participate ‘in the expected forthcoming recovery’ of small cap shares following the Conservative party’s resounding victory in the December general election which helped remove some of the Brexit uncertainty that had weighed.
‘I’ve been doing this since 1985 and I’m telling investors that small caps don’t recover as quickly as the main and mid-cap companies.
‘The stocks in the fund are particularly undervalued on a relative and absolute basis, with an overall price-to-book ratio of 1.1 times, for example, versus 2.2 times for the FTSE AIM All-Share index,’ Williams said.
Among the stocks to have weighed on the fund are Corero Network Security (CNS), a top 10 position at the end of December, which has slumped 44% over the last 12 months. Frontier IP (FIPP), another top holding, is down 18% over the last year.
Nanoco (NANO), a 2.4% position at the end of May, the period covered by the fund’s last annual report, has lost nearly two-thirds of its value over the last year. Williams has since sold out of the stock.
Other heavy fallers include Anglo African Oil & Gas (AAOG), a 1.2% position at the end of May and down 96% over the last 12 months. Zotefoams (ZTF), a 1.1% position in May, is down 35% over the same period.
To fund withdrawals, Williams has trimmed some of his holdings while selling out of others completely. The number of stocks in the portfolio has fallen from 89 at the end of May to 56 at the end of last year.
Williams, who co-manages the fund with Martin Turner, has built significant stakes in a number of tiny businesses, and offloading them could take him several months given their low trading volumes, according to Morningstar data.
Stock exchange filings over the last month show Premier Miton reducing its position in a number of Williams’ holdings, but the fund group remains a large presence on their shareholder registers. Examples include:
Although not wanting to comment on specific names, Williams said that over the past few months he had been able to sell his entire stake in some of his more illiquid holdings.
He insists that the main issue with his picks is that they have been overlooked by investors due to their small size, but that the situation would soon be reversed.
‘We should not change what we’re doing just because investors want to put their money in something else,’ he said.
‘I want to make money for my clients and if you look back at my record that’s what I’ve achieved. I don’t achieve it every year and it has been, particularly with Brexit, quite a long period when there’s been a hold-up on investing in the UK, but over the next two or three years you’ll hopefully see a nice catch up on the other side.’
He added: ‘It’s not about the size of the fund, it’s about the viability of delivering for our clients. We started at £4m. I’m not saying it’s going back to £4m, the point is that just because it’s big or small isn’t the main issue, the key issue is whether we are going to make money for our clients.’