Mohamed Ali Bernat Richard Hallett has managed Singer & Friedlander's Aim retail fund since its laun...
Mohamed Ali Bernat
Richard Hallett has managed Singer & Friedlander's Aim retail fund since its launch in May 1996. At the time the Aim market was relatively new and had only around 50-60 stocks listed. Hallett said this made it difficult initially but an increase in IPOs and stock movements has seen his investment universe swell to more than 500.
At £6m, the Singer & Friedlander Aim Oeic fund is still quite small but Hallett believes he thinks the fund can easily support more and as such he is looking to grow its assets to £50m over the next five years.
The group itself manages some £350m in investments in UK smaller companies and within that about £100m of which is Aim orientated, the remainder of which is in pension fund mandates. On the Aim side Singer & Friedlander has a number of VCTs, private client specific Aim portfolios and the Aim fund.
Describing his investment style as bottom-up with a medium term outlook, Hallett holds a number of technology related stocks and has a high sector weighting in information technology.
With 12.7% invested in technology, the top four holdings in the fund are all tech-related and include dot.coms such as sportingbet.com, an online betting company, Robotic tech systems, Zytronic, which deals with touch screen technology and Epic group, which handles online training.
But the holdings do vary, he says, and technology does not make up the largest portion of the fund. The Aim fund has 15.6% invested in basic industrials, 13.7% in leisure stocks and 5.4% in healthcare.
According to the group, the fund has returned 195.9% since launch with more recent performance of 158.3% over the three years to January and 7% over the 12 months to 12 January.
This compares to the fund's benchmark, the FTSE Aim index, returns of 46.3% since the May 1996, 57% over three years to January and -19.4 in the 12 months to 12 January.
VCTs seem to be in vogue with new launches every week. What is behind this new popularity?
VCTs are growing in popularity and becoming more of a mature offering. Three to four years ago the market did not understand the product offering, as the legislation is quite complex. As the markets become more aware of what the tax breaks are and also what they offer investors so has the smaller companies market matured in having more opportunities to invest in qualifying investments.
And the Aim market?
Perception of the Aim market has changed quite dramatically over the past two years. The first couple of years that the Aim market was around it was perceived by the more generalist fund managers as quite a high risk marketplace.
There were a lot of new start-up businesses, not satisfactorily regulated, and a low number of what might be termed quality institutional smaller cap type growth stocks, so it was not really a market worth spending a lot of time investigating investing in.
You found quite a lot of larger institutional fund managers who would not even look at Aim at all. Nowadays that's reversed. I doubt you'd find many smaller company fund managers or general growth funds that would not look at Aim.
That u-turn in perception has been brought about by the startling performance of some of the technology and other stocks within the Aim index such as Baltimore Technologies, Fibrenet and BATM. These have taken the market by storm over the last 18 months and graduated into the mainstream FTSE indices.
BATM went from being on Aim with a market cap of £20-30m to become worth a couple of billion at its peak. I think that has really focused institutional fund managers' minds on the fact that in order to get into these growth type stocks they have to look at them when they are still quite small.
As a specialist fund manager, where do you feel you have most freedom in investment policy?
You have got a very wide diversity of the type of company on offer spanning many different sectors. You have literally got a range of businesses at the start-up level with not much more than a product or business plan who are looking for equity investment to start up their business development.
In those situations we get a lot closer to the company and keep in contact more than we would for stocks that are further down the development chain. That is because they are higher risk and we want to satisfy ourselves that we fully understand their plans.
Start-ups carry a lot of risk. To what extent do you get involved with the management process to ensure your investment will bear fruit?
In all cases, whenever we make a decision, we meet the management and the management team as well as viewing whatever research is available on the market as a minimum measure.
At the earlier, higher-risk end of the market we would go and visit the company's offices and we'd spend more time with the company's directors, we wouldn't just want to see the chief executive.
However, we don't take a place on the board or anything like that and we don't take more than a 10% stake of the business.
Lack of research data must be a problem. How do you go about settling on suitable valuations?
Smaller companies are not going to have reams of research whereas a larger, more institutional stock will have two or three brokers issuing research, which does help to understand what the market sees as the growth drivers of the business.
We will always use whatever research has been done on a company but will not always agree with the opinion at the end of it.
Our basic approach is that we're more growth oriented than value focused and, when looking at valuations, we are always seeking growth at a reasonable price. That is more often than not quantified in forward price earnings multiples and by focusing on the quality of the earnings stream going forward. We're not looking out for six months, we're often looking over several years and we are much more medium to longer term holders
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