We have added the Artemis UK Smaller Companies fund to our Recommended list.

Snapshot

A UK smaller companies fund, run by experienced managers.  They employ a long-term approach, preferring companies that have strong balance sheets and predictable and growing cash flows.  Within its sector, the fund features in our ‘Smaller-Cap, Flexible’ category.

Fund Description – Key Points

• Fund managers, Mark Niznik and William Tamworth, are experienced and pragmatic UK smaller company investors.
• At the heart of the investment philosophy is the belief that the long-term power of compounding is underappreciated, an issue that is exacerbated by investors’ tendency to be focused on shorter-term momentum.  They take a long-term approach and seek out overlooked opportunities that they believe can deliver a good total return over a three to five-year time horizon.  In their view, an ideal investment offers a predictable and growing stream of cash flows which can be sustained without significant incremental investment.
• The managers have established an investment process that is thoughtful and intuitive.  They aim to balance quality and valuation risks with an emphasis on position sizing that reflects the degree to which companies meet their investment criteria.
• The managers consider themselves long-term investors in companies but understand the need to balance investment discipline with pragmatism and patience.

Characteristics and Utility

• The team's focus on balance sheet strength and cash generation means the portfolio has a ‘quality’ feel, while the focus on valuation means that overall, the fund has a value tilt.
• The portfolio is built without benchmark constraints, which means that its risk/return outcome can differ meaningfully from indices and peers.
• The nature of the approach means the managers will not invest in companies that are pre-revenue.  They are also sceptical about the prospects of investing in small companies with overly ambitious growth projections attached to their future performance expectations.
• As such, the fund should not be expected to participate in shorter-term rallies from companies with weaker balance sheets and/or those in challenged industries.    It will also struggle when strong fundamentals are not being rewarded.
• Smaller-cap investments usually exhibit larger drawdowns in times of crisis than large-cap companies and can be higher risk. Consequently, the fund would usually be one part of a broader equity portfolio, but its steady characteristics should make it a comfortable holding in the context of the asset class.

To view our factsheet, please visit the fund page on our website.