Benchmarking
Total return, bid to bid line chart from 22/11/2007 to 01/07/2009 from UKUT and OEICs Universe
Source: Financial Express
Past performance is not a reliable indication of future results
Total return, bid to bid line chart from 02/07/2008 to 01/07/2009 from UKUT and OEICs Universe
Source: Financial Express
Past performance is not a reliable indication of future results
You can drip feed as little as £25 per month into this fund
(following an initial investment of £1000). If you have any questions about investing in the SF t1ps Smaller Companies Growth Fund, about using ISA or SIPP allowances or about arrangements for IFA's or if you want a simplified prospectus and an application form please contact Spiros Kurtidis on 0207 562 3386 or at spiros.kurtidis@t1ps.com
Newsletter Editorial
So far this year the FTSE 100 has lost around 6%. The FTSE AIM Index is up by around 17% and the Small cap Index by more than 20%. Now we accept that the small caps took one hell of a beating to quote Norway's most famous football commentator during 2008 but that disparity of performance has not gone un-noticed. The net inflows to UK small cap funds the SF t1ps Smaller Companies Growth Fund included have been material. We would like to thank those who have supported us, whether from the start, or more recently and we are delighted that we have delivered a positive return for you as we have done for ourselves. Our SIPP and ISA money is in the fund too!
But our suspicion is that many of those who think that they are investing in smaller companies fund have in reality little exposure to what we would term small caps, to the stocks that are now delivering such material outperformance. When trying to work out why the SF t1ps Fund has generated a positive return of more than 20% over the past year while ALL of the UK's other small cap funds (60 in total) have lost money, one reason is that many so called small cap funds are in fact largely invested in rather large companies. This is not because they have bought into acorns which turned into oaks but because they bought oaks in the first place.
Looking at the largest holdings of funds such as Baring UK SC, Credit Suisse SC and Investec SC we see that their largest holdings include such names as Smiths News, Chemring and Babcock. Many small cap funds refuse to look at anything under £20 million in market capitalisation and other set thresholds of as high as £50 million. A good number will not look at AIM at all. If you want a cautious investment then might we suggest that you go for a low cost FTSE 350 tracker fund because these small cap funds have as little chance of galloping as Jim Slater's proverbial elephant.
The other thing that strikes us about these more established names in fund management is that their holdings are so diverse. A fund which invests in 200 stocks with none representing more than a couple of percent of the fund is pretty unmanageable. How on earth can so many companies be monitored? And it is very hard to see how a mini-index can deliver meaningful outperformance. Managing such a basket is not about analysis or stock picking but paper shuffling and the fees should reflect that a job involving no skill merits a lowly fee.
We continue to monitor our portfolio carefully. During the past 8 working days we have chatted to board members of 20 of the 36 stocks in which we are invested. If you are managing a portfolio of 200 stocks will you really talk to 115 companies in 8 days? We doubt it. Based on those conversations we remain cautiously optimistic about slow economic recovery and thus about equity market calculations. Therefore, since this time last month, we have added to our holdings in Blavod, Northern Bear, Telecom Plus, Stanley Gibbons, First Artist, Avanti Communications, Access Intelligence and Interquest. Our cash weighting is currently 14.18% simply because of the cash that has flowed in and the odd dividend but we are actively investing, we will be back to our normal 5% cash before long. Watch this space!
Tom Winnifrith & Robert Sutherland Smith
Past performance is not a reliable indication of future results.
Top Ten Holdings (as of 02/07/09)
Fund Information
|
Size: |
£ 9,019,820.78 (02/07/09) |
Launch date: |
21 November 2007 |
Launch price: |
£1.00 |
Current Yield: |
0.00% |
Legal Status: |
OEIC |
Annual Management Fee: |
1.5% |
Initial Charge: |
5.25% |
Minimum lump sum Investment: |
£1000.00 |
Minimum monthly investment: |
£25.00 |
IMA Sector: |
UK Smaller Companies |
Sedol Number: |
B28R5W3 |
Unit offer price: |
Single Priced Fund Last Dealt Price:
117.2402p (02/07/09) |
Unit bid price: |
As Above |
|
You can drip feed as little as £25 per month into this fund (following an initial investment of £1000). If you have any questions about investing in the SF t1ps Smaller Companies Growth Fund, about using ISA or SIPP allowances or about arrangements for IFA's or if you want a simplified prospectus and an application form please contact Spiros Kurtidis on 0207 562 3386 or at spiros.kurtidis@t1ps.com
Four more we bought more of
.
It is incredibly rare these days that we make a new investment. If anything we are minded to divest a couple of holdings and reduce the number of holdings within the fund. As such our focus is on adding to our holdings of those companies we back and where we see value in buying more at current prices. Over the past month we have added to our holdings in a number of stocks but four are perhaps worthy of fuller comment as on the surface of it we may be accused of throwing good money after bad.
Northern Bear
We are 25% down on this one having averaged down with a large post results purchase at 50p. So why do we show faith with this construction and support services business based in the North East? Firstly, it goes without saying, that we like the management. Secondly results for the year to March 31st were not bad at all given the fairly horrid state of the economy: pre-tax profits were up from £2.86 million to £3.08 million and earnings increased from 10.3p to 11.5p. Net debt at the period end was £9.8 million but is coming down steadily at £500,000 a quarter.
The second half of last year was markedly worse than the first so this year we expect pre-tax profits to fall to £2.5 million and earnings to be 9.2p. But competitors are going bust while Northern is clearly a survivor and that means that trading is now stabilising there are even a few green shoots in County Durham. So this really is the bottom of the cycle year. By 2012 we will be back to normal mid cycle earnings (say 15p) and on a low teens rating you can see the upside. There will be a modest yield to keep us going and as patient investors we will prosper by just waiting.
First Artist
First Artist was one of our larger disasters we were 84% down. But there was a placing the other day at 10p which we signed up for and our average loss with the shares at 13p is now 35%. We are confident that we will be back ahead of the gain line before too long.
First Artist's problem is that everyone perceives that it has too much debt (c£16 million after the £1.4 million placing). It probably does have a bit too much. But the football transfer season is upon us which is a good cash generator and by Christmas we believe that its football agency and its wealth management business Spot & Co will have been flogged for £4-5 million so First Artist will enter 2010 with net debt of sub £10 million. It will be left with its theatre businesses Spot & Co and Dewynters which are trading profitably and should we believe help First Artist to start making an annualised EBITDA of c£5.5 million.
Now if First Artist can achieve that then by Christmas 2010 debts should be sub £7 million and by 2012 they will be eliminated altogether. At 13p First is now capitalised at £3.89 million or less than one year's EBITDA from pure theatre. Clearly the market is valuing it on an Enterprise Value basis of c£20 million. It is our belief that as the debt is shifted in a meaningful way the EV/EBITDA multiple will increase from sub 4 but even if it does not the mere process of slashing away at that £16 million of borrowings a process we expect to accelerate from this Autumn would drive a significant re-rating for the shares.
Interquest
Interquest is a bit like Northern Bear a cyclical with a bit of debt. Interquest is however repaying its debts at a rate of knots. It was £5.5 million as at March 31st 2009. Our belief is that it could be eliminated by September 2010. Last year earnings came in at 12.7p. This year we expect 9p but it could be 5p for all we care this is a cyclical business and at some stage over the next three years, earnings will be back at 15p plus. At that stage does this sound familiar? Interquest will be on a low to mid teens multiple. Hence if offered stock at less than 45p which is less than 5 times forecast current year bottom of the cycle earnings but also less than a third of where the shares will be in a normal economy, it would be churlish to refuse. There is a modest yield as an added compensation.
Telecom Plus
Why are most fund managers total idiots? Read on. We have had long discussions with Charles Wigoder of Telecom Plus about why his shares appeared marooned at 270-280p. The stock is in the FTSE 250 so the big question is why are fund managers not buying? From a variety of sources we are offered two main explanations.
The first is that because Telecom Plus is part utility, part distributor, part retailer fund managers find it hard to value as it is not in any one sector and so hard to compare with similar companies. Hell's teeth. Now you know why fund managers gorged on telecoms stocks on PEs of 75 in the dotcom boom because a PE of 75 was cheap compared to the rest of the sector. Such analysis is rather like saying that RSS and Tom Winnifrith (combined weight in excess of 30 stone) are champion athletes within the t1ps.com stable merely because Evil Knievil tips the scales at 24 stone on his own. Anyone who backs any of those three heavyweights to finish a 100 metre race let alone to win it is certifiable yet that is what professional fund managers do with your money and that is why they will not buy Telecom Plus because they are to dim to look at it in absolute terms.
The second reason is that because no funds are buying the stock it may be ejected from the FTSE 250 Index which it is argued will cause fund managers to sell.. So some people have shorted it ahead of ejection so making this a self fulfilling prophecy. But since no FMs have bought since Telecom joined the FTSE 250 why would any sell?
Amid this madness we have been feasting on Telecom Plus stock at levels between 270p and 300p. The shares are now 278p. Just a reminder: this company has a large net cash position which may well soon be swollen by the sale of a non-core subsidiary. It has promised to pay a dividend of 22.5p this year. Next year it should pay 25p and with minimal capex needs and net cash it can continue to increase the dividends rapidly thereafter as it operates a highly scaleable business model which should we believe push earnings to 45p by 2013. Some followers talk of 30p followed by 35p as we move out to the March 31st 2012 and 2013 financial years. And the shares are now 278p. So that is a current year yield of 8.1% and rising. We welcome the idiocy and laziness of the professional fund manager and the twisted thinking of those who go short or will not buy because a stock is going in or out of a particular Index. That has been our opportunity to buy and the result is that Telecom Plus is now the largest single holding of the SF t1ps Fund.
It is a central belief of the managers of this fund that the underlying value of a stock is purely a function of the cash it can generate nothing else matters. The investment opportunity (to buy and sell) is created when the price does not match that underlying fundamentally derived cashflow. It is the obsession of the market professionals and private investors with sector weightings, Index inclusion or exclusion, peer group comparators and the folly that is technical analysis that creates the huge distortions which provide such an enormous opportunity for the fundamental investor. In times of uncertainty and we live in truly uncertain times those distortions/opportunities will be greater than ever.
Tom Winnifrith & Robert Sutherland - Smith
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