This fund is a modest £34m in size despite launching in 2005 and is managed by experienced smaller companies investor Paul Mumford. His objective is to achieve long-term capital growth. He says: “The Cavendish Aim fund is unusual in the small-cap fund sector in that it solely focuses on companies listed on the Alternative Investment Market (Aim).”
Mr Mumford explains his approach is very much a stockpicking one, focusing on companies with strong long-term growth potential and adding to those holdings at attractive valuations.
“The fund tends to avoid loss-making companies and overseas companies listing on Aim,” he points out. “I also generally steer clear of shares that look highly valued. Although it is a stockpicking approach with no general or hard-and-fast sector biases, I tend to avoid mining companies and am cautious about financial firms, such as asset management or property companies.
“Conversely, when conditions are right, I’ll tend to look for opportunities in some unloved sectors; for example, oil and gas exploration and production companies at a time of low oil prices.”
Do macroeconomic factors come into the process at all? He replies: “Not directly – I pick companies on their own merits, and look for investments wherever they can be found. The fund would never add to a holding just for the sake of increasing exposure to a certain in-favour sector.”
But he concedes: “Macroeconomic conditions do indirectly affect the process as they make a difference to where opportunities are likely to be found at any given time. For example, I am bullish about the prospects for a lot of oil and gas Aim stocks at the moment – their earnings tend to be in US dollars while their costs are in sterling, meaning they get a double benefit from the sterling fall, while also profiting from rising oil prices. On the other hand, when interest rates eventually rise this could spell trouble for a lot of companies that look okay now.”
Recently, the manager has been adding to quite a few holdings and has trimmed several positions where share prices “moved ahead of the game”.
He notes: “The market has seen quite a few initial public offerings and fundraising rounds in recent months, which the fund has taken advantage of, such as clothing and footwear company Joules, student home developer Watkin Jones, and Autins – which supplies sound-proofing products to the automotive industry. There have also been a few cases of companies issuing profit downgrades which, assuming long-term growth prospects are intact, have created chances to add to these holdings.”
Share class B is the clean retail share class, with ongoing charges of 0.85 per cent and sitting at level five on the risk-reward scale.
When asked about performance, Mr Mumford acknowledges: “The fund has been enjoying an exceptionally good spell recently, and is outperforming the entire wider small-cap sector.”
FE Analytics data reveals the fund delivered a 19.2 per cent return over the past 12 months to October 25 2016, beating the IA UK Smaller Companies sector average of 5.6 per cent and the FTSE Aim All-Share index rise of 12.1 per cent. The fund’s performance has held up over the longer term too, generating 120.6 per cent return in the 10 years to October 25, while the average peer group return is 113.4 per cent and the index is down 7.3 per cent.
He attributes the fund’s outperformance to many factors, including “the Aim market as a whole is a lot healthier than previously in terms of the strength, calibre and potential of companies on it”.
“There are a couple of examples from the oil and gas sector that illustrate why I’m so buoyant about its prospects at the moment,” he says. “Ithaca Energy and Hurricane Energy are examples of firms whose share prices have virtually trebled over the past few months.”
Among the holdings that detracted from performance are Quantum Pharma. Mr Mumford says: “Quantum Pharma saw its share price halve on the back of a profit warning from a recently acquired subsidiary. A new management team is closing this business to concentrate on its high-growth specialisation in the supply and manufacture of unlicensed drugs. This price movement provided an excellent opportunity to add to my holding.”
