The small-caps getting this top fund manager excited

TL;DR

Investing in smaller companies can provide genuine growth opportunities, offering higher earnings growth compared to larger companies.

Transcript

all the academic research points to smaller companies outperforming over the longer term and I think investors looking for genuine growth need to go down the market cap scale I was thinking my grandparents generation who invest in to stock market for growth than they would get a dusty old chest if ago put it in the attic and and would remain long-t... Read More

Key Insights

• 🤑 Academic research supports the idea that smaller companies tend to outperform larger ones over the long term.
• 🛩️ Investing in smaller companies can provide genuine earnings growth, often surpassing that of larger companies.
• 🛩️ Successful investment in smaller companies requires a disciplined approach and a focus on companies with potential for significant value creation.
• 🌍 Brexit may introduce some uncertainty, but international focus and revenue diversification mitigate its impact on portfolio companies.
• 🛩️ Smaller companies with exciting growth stories, such as Future PLC and Key Word Studios, present attractive investment opportunities.
• 🤑 Proactive sell discipline is necessary to capture profits from successful holdings and move on from underperforming ones.
• ❓ External pressures and challenges, whether economic or political, are a normal part of companies' operations and are managed accordingly.

Questions & Answers

Q: Why do smaller companies tend to outperform larger companies over the long term?

Academic research indicates that smaller companies have a higher potential for growth, as they are often innovative and agile. This translates into higher earnings growth, making them attractive for investors seeking long-term growth opportunities.

Q: What are some examples of exciting growth stories in smaller companies?

Future PLC and Key Word Studios are mentioned as exciting growth stories. Future PLC has been on an upgrade cycle for the past two years, and Key Word Studios has experienced growth of over 60% annually. These companies show promising potential for continued growth.

Q: How does the investment team decide when to sell a holding?

The investment team follows a collaborative approach to evaluate holdings. If a company fails to meet their objectives or the investment case deteriorates, they will sell the holding. Similarly, if a company exceeds expectations or reaches its maximum potential, they will take profits and sell the holding.

Q: Is Brexit affecting the performance of the portfolio companies?

While Brexit creates some uncertainty, the portfolio companies are international and generate 55% of their revenues overseas. Management teams are focused on growing their companies internationally, and the impact of Brexit on the portfolio is not considered to be significant.

Summary & Key Takeaways

• Research suggests that smaller companies tend to outperform over the long term, making them attractive for investors seeking growth.

• Small companies with exciting businesses can experience earnings growth of 20-30% compound annually, compared to low single-digit growth in larger companies.

• Successful investment in smaller companies requires a disciplined approach, focusing on companies with potential for significant value creation.