Focused approach sees Standard Life’s Nimmo make steady gains

In the latest table, which covers the three years to the end of May, Mr Nimmo was ranked in 339th place overall, meaning that in the Scottish table he was second only to Amati managers Paul Jourdan, David Stevenson and Douglas Lawson, who collectively manage the Amati UK Smaller Companies Fund.

Over the five-month period Mr Nimmo’s Citywire A rating was also upgraded to AA in April and AAA for the three years ending in May.

Mr Nimmo said his rise in the chart is a reflection of the fact that investing in smaller companies can lead to some volatility in the short term, although that is ironed out over the longer term.

“Quite often with smaller companies you see the better returns in the first half of the year then things go a bit quiet after that,” he said.

“There are certainly issues over Brexit negotiations but my long-term prognosis is pretty bullish - I think smaller companies give superior returns over the long term.

“I did a bit of work looking at the 20-year history of our fund and examined how long you would have to hold the fund to receive approximately 11 per cent per annum total return or better. The answer was six years.”

The fund benchmarks itself against its peers in the Investment Association’s UK Smaller Companies Sector, which it outperformed over the last three years but underperformed over one and three years.

This, said Mr Nimmo, highlights the importance of investors being able to commit for longer periods.

“Smaller companies can be volatile and in the last 20 years the fund has fallen by 25 per cent in a one-year period three times,” he said. “Investors have to be able to cope with that.”

While he admitted that external factors have an impact on the companies the fund invests in, Mr Nimmo said he does not take those into account when choosing whether to invest, preferring instead to judge each stock on its own merits.

“We concentrate on buying tomorrow’s large companies today and there’s a strong emphasis on the growth and quality of the business,” he said.

“We don’t have an overlay of macroeconomics or politics.”

Sometimes that can hurt the fund, with its decision not to hold any oil and gas or mining companies proving a drag on performance when the fundamentals of those markets made something of a recovery last year.

“We don’t hold any oil and gas or mining stocks because we consider them too risky at the small-cap level but that was a negative,” Mr Nimmo said.

“We were also a bit heavy on UK-oriented businesses in the led up to Brexit. We have now de-emphasised that and over half our companies generate their revenues and profits outside the UK.”

Although the fund is £1.3 billion in size, with just 50 stocks the portfolio is relatively concentrated, with each typically staying in the fund for a period of around five years.

While each has been picked without reference to a particular theme, Mr Nimmo noted that healthcare, software and veterinary companies have become the fund’s themes by default.

Among its largest holdings are Northern Irish data company First Derivatives, which Mr Nimmo first bought in 2010, and veterinary medicine company Dechra Pharmaceuticals.

Food company Cranswick is another name Mr Nimmo said is interesting, noting that it has found a market for offcuts of meat that British people will not eat, such as pigs trotters and ears, and has begun exporting those to China.

Since December last year Mr Nimmo has managed only the UK Smaller Companies fund and a similarly focused investment trust, having passed management of Standard Life’s Global Smaller Companies Fund to Alan Roswell in December last year.

The pair had co-managed the vehicle since 2012.