By Giles Hargreave | Mon 30 November
Giles Hargreave, who has managed the Marlborough Special Situations Fund since July 1998, gives an overview of why he believes first hand research and diversification are key to successful smaller company investing.
This is the original, unedited version and should not be seen as a personal recommendation to invest or make any changes to your portfolio. Please note that Hargreaves Lansdown and Marlborough do not necessarily share his views.
Smaller companies often grow at a much greater speed than older, larger companies – it is, for example, more difficult for a company valued at £10 billion to double in size compared with a sub £100 million company.
For all their potential, smaller companies can be risky. Volatility is high but the rewards are impressive for those who have the experience and resources to uncover the gems.
To reduce exposure to risk investors can choose a smaller company fund rather than buying individual stocks. This way they get a professional manager and the benefit of diversification.
Experience counts in this arena even more than in others. A successful manager will develop an instinct that warns them when something does not feel right about a company, together with the skills to ask the right questions to pinpoint the trouble. It sounds trite but it is essential to maximise winners and minimise losers.
Diversification can reduce individual stock risk and smooth out some of the volatility. There’s nothing wrong with high conviction management, but in the small caps arena when a company hits trouble it can collapse quickly, so we recommend the protection given by a portfolio diversified across more than 100 stocks.
Managing that many stocks, particularly in this arena, requires plenty of people. It is important to ensure that the fund is run by a decent sized team which has the capacity to follow a large number of companies. For my money it is crucial for a small cap fund manager and his team to spend a great deal of time getting out to meet managing directors and really understanding their companies.
This bottom up approach is the key to finding the jewels in the small cap arena. And they are out there: up-and-coming firms, with strong management which have developed innovative and competitive products or services that are capturing market share.
I will continue to look for these companies, just as I have done during the last 11 years for the Marlborough Special Situations Fund.
3 simple ways to invest
The Marlborough Special Situations Fund is available for investment through our ISA, SIPP and Fund Account. Before you invest in the Vantage ISA or Fund account, please read the Vantage Key Features and terms and conditions or the SIPP Key Features and terms and conditions if you want to invest in the Vantage SIPP. You should also read the Key Features of your chosen investment. Key features of the Marlborough Special Situations Fund
1. Online with a debit card - if you are registered for our online service simply log into your account to invest. Alternatively visit our online application page.
2. By telephone with a debit card - call 0117 980 9897.
3. By post with a cheque - download an application form and return it with your cheque to Hargreaves Lansdown, 1 College Square South, Anchor Road, Bristol, BS1 5HL. Alternatively, if you already have cash to invest on your account simply log into your account to deal or call us on 0117 980 9807.
