Old Mutual Global Investors’ Dan Nickols has implemented a series of changes to his £708.4m UK Smaller Companies fund in a bid to benefit from a more positive outlook for the UK economy.
In the past few months the manager has been increasing his fund’s exposure to economically sensitive companies and buying stakes in a number of firms with less than £100m in market capitalisation.
“We’ve been getting more comfortable with the idea that the UK recovery is for real,” Mr Nickols said.
“Companies can see stability in the eurozone, a recovery in the US and other signs that the improvement is sustainable. I think now is the right time to drive down through the market-cap spectrum to pick up some stocks that have been overlooked.”
Mr Nickols has bought into “sub-£100m” firms such as energy consultant Utilitywise, mail-order specialist Findel and digital data company WANdisco, but so far none of the holdings has exceeded 1 per cent of the fund.
The manager said he did not want to get “stuck” in illiquid micro-cap stocks if market sentiment turned negative, but emphasised that he felt sentiment was more likely to improve.
“If we thought risk appetite was going to improve further, we would add more to these positions,” he said.
Regarding capacity, Mr Nickols admitted the UK Smaller Companies fund’s size was “something of a constraint” when it came to stakes in the smallest firms.
Back in 2006 Old Mutual set a limit on how many units of the UK Smaller Companies fund would be issued, which Mr Nickols said gave him roughly £200m of capacity remaining as of the end of September.
Elsewhere in the fund Mr Nickols said he felt the market for companies to list on the stock exchange was “reopening more decisively” with higher-quality companies coming to the market than in previous years.
So far in 2013 the manager said he had backed the listing of London estate agent Foxtons, and said he was likely to participate in the expected listings of financial companies Arrow Global and Tungsten Corporation in the coming weeks.
The Old Mutual UK Smaller Companies fund has gained 63.9 per cent in the three years to September 30, outperforming the IMA UK Smaller Companies sector average, according to FE Analytics.