At the moment we are living in a very Chicken Licken world, where it looks like the sky is going to fall down on us.
I think that the impact of political events is clearly exaggerated. Spain has had no government effectively for the whole of the year 2016 and it didn’t stop the country becoming the best performing economy in the Eurozone.
So again I think it’s wrong to focus too much on politics. What we do is very straightforward, our process is simple. We look for the hidden champions: companies that are undiscovered by investors, that will dominate a niche market and often are family run. Over time, they have proved to be resilient and durable, soundly financed, making attractive margins. And, of course, because they’re hidden, the valuation isn’t properly appreciated by investors.
We have noticed that investors in the UK tend to be more preoccupied with the latest sort of political worries or fears about the Euro, the Italian banking system and we’ve certainly noticed that towards the end of 2016 we saw increased risk aversion from investors in the UK and an unwillingness to allocate towards Europe. Of course, that has created the opportunities. But all of my experiences as I travel around Europe meeting companies, great companies that are doing great business and growing, says that that’s just simply wrong.
I think the most attractive characteristics of small caps are that over the long term they’re proven to have delivered a superior risk adjusted return to investors. One of the main reason for that is that they’re under researched and that remains true today – that small companies have just a handful of analysts covering them on the sale side. What that means is that you have the opportunity for sizeable pricing anomalies.
Ken Nicholson – European Equities Manager – Mirabaud AM