March 2022 saw the launch of a new fund to provide investors with a portfolio of attractive UK smaller companies. The SVS Dowgate Wealth UK Small Cap Growth Fund focuses on well-managed smaller companies capable of delivering long term growth.
Experienced & Knowledgeable
The ability and experience of the fund manager are critical factors for success when investing in smaller companies. The SVS Dowgate Wealth UK Small Cap Growth Fund is headed by the highly experienced fund manager, Mark Chadwick. Mark has an enviable track record and a vast range of specialist knowledge. Supporting Mark is a close-knit team of investment professionals with broad and deep investment knowledge and experience.
Smaller Companies Have Outperformed
Historically, smaller companies have grown faster and delivered superior returns to the broader equity market. Smaller companies tend to be more agile in changing market environments. Adopting innovative and disruptive technologies, often with tighter, founder-led company cultures, these companies offer the potential for significantly higher returns over the long term.
By a Lot Over Time
Indeed, the Numis Smaller Companies Index (NSCI) has returned 192% over the past decade, more than double that of the FTSE 100. Over the longer term, from 1955-to 2020, the NSCI returned 14.6% per annum, 3.4% pa above the broader UK market. Just £1 invested in the NSCI (smaller companies) in 1955 would have grown to a staggering £10,138 by 2020, a near tenfold improvement over the return from an investment in the largest companies. (Source: Evans, Dimson & Marsh, Numis, January 2022).
But it isn’t Easy
The reality is that smaller companies are often under-researched and overlooked by brokers and other investors. It takes time to meet company managers and understand their strategic ambition and how their businesses operate. Choosing tomorrow’s winners requires a fund manager with Chadwick’s skill and experience. He has a track record of selecting well-managed innovative companies sufficiently resilient to meet future market challenges and come through stronger. His key focus is on growth, management and valuation.
Done it Before
Chadwick’s gained much of his smaller companies’ experience working on the highly regarded Marlborough Special Situations Fund alongside the legendary UK investor Giles Hargreave. From its launch in July 1998 to December 2020, the Marlborough Special Situations Fund delivered a 3,942.9% return, compared to 676.0% for the peer group of UK Smaller Companies funds. While past performance is not a guide to future performance, this represents invaluable experience.
Long Term Approach
Mark and his team research and invest in UK Small Cap companies that they believe to be fast-growing yet undervalued. These companies are typically not well known to most investors but possess the long-term potential to become market leaders. The famous investor and author Peter Lynch said: While big companies have small moves, small companies have big moves. The typical small company winner generally takes three to ten years to play out.
SVS Dowgate Wealth UK Small Cap Growth Fund brings together three critical but related pillars of successful investing: Team, Process & Culture.
Team:
Mark Chadwick has 28 years’ of experience in the industry. Before setting up Dowgate Wealth in 2020, he managed £250 million of discretionary mandates and bespoke client portfolios at Hargreave Hale. He is now responsible for over £190 million of client assets. Alongside Chadwick is a team of four senior investment professionals: Ben McKeown, Josh Ross-Field, Jeremy Harris-St John and Will Searle, all of whom previously worked at Hargreave Hale (acquired by Canaccord Genuity) and have developed a reputation for astute stock picking. They always get to know the management of the companies they invest in via face to face meetings and have developed a disciplined investment approach.
Process:
The fund aims to maximise capital growth. Chadwick is looking to identify companies with passionate and committed management, great product, strong cash flow and significant growth and earnings potential. His expertise in understanding what makes a small company successful, combined with regular management meetings, gives him a valuable edge. A bottom-up research process is time-consuming and involves the team meeting more than twenty companies per week. The overarching objective is to identify a portfolio of companies where they can develop sufficient conviction to take a meaningful position. Typically they back proactive, forward-thinking company managers who have ‘skin in the game’ and a proven track record. The portfolio includes many founder-led companies, which often have these attributes.
Culture:
Critical to the culture of the Dowgate team is an open mindset and speed of communication and execution. Over time, an internal challenge and debate culture builds longer-term conviction in the fund’s core holdings. This approach allows Chadwick’s investment process to be agile and impactful when opportunities arise. It also allows him to quickly reassess and exit positions that might not be delivering the originally hoped-for returns. This nimble approach focuses the fund on high conviction durable performers, held for the long term.
Why Now?
There are always things for investors to fear as they look to the future. At any moment, there are more reasons not to invest than to invest. Chadwick’s team has experience in picking stocks through different cycles. The key is to identify those companies that can thrive in all economic and financial weather and develop the conviction to own these winners over the long term.
Most equity indices have underperformed over recent months, creating anomalies. In these situations, the valuations of the most successful companies can be particularly affected. After the recent setback, Chadwick believes such valuable anomalies now exist among quality UK stocks.
“After recent falls, we believe this is an excellent time to identify value and buy into stocks that have great potential but have been left undervalued”, he says.
Written by Jeremy McKeown
