MONTANARO EUROPEAN SMALLER BUSINESSES TRUST: Fund gets big returns from its small businesses
London-based investment manager Montanaro eats, sleeps and breathes ‘good’ smaller businesses. The investment vision is simple: smaller companies have the potential to provide investors with excellent long-term returns, especially if they are also run with a keen eye for the environment, fair working practices, and do not promote boardroom greed.
It’s a philosophy that underpins the £ 3 billion in assets that Montanaro manages on behalf of investors – with all of its funds and trusts having at least 60 percent of their investments in ‘good’ smaller companies. A team of 11 in-house analysts are constantly scouring the world for hidden gems of investment that the managers can then absorb.
Nowhere has this commitment to minnows been more successful than with investment fund Montanaro European Smaller Companies. The performance of this £ 282 million fund over the past year in the face of the pandemic storm – a total return of 44 percent – has been exceptional and far outperforms other trusts specializing in this particular area. The three and five year investment record also beats the competition.
The manager is George Cooke, who has been at the helm for the past eight years. He likes to downplay his role in its success. He says the trust’s performance is primarily a confirmation of Montanaro’s rigorous investment approach to smaller firms.
This ensures that no manager can buy stock without first being approved by the company’s internal investment committee. It also means that a company should be discharged quickly if the same committee believes it has survived its target. In other words, no fund manager should go off-piste. It’s a team approach.
“European smaller companies are an overlooked investment space,” says Cooke. ‘Together they represent an investment category that is not easy to cover and is labor-intensive in terms of analysis. But for those who like to do the hard graft, which is what our analysts are, there are some rich choices to make. ‘
While Cooke says many British investors remain lukewarm to invest in Europe, he believes some of the smaller companies in Germany and Sweden are among the best in the world.
“There are a large number of entrepreneurs in Europe who run high-quality, fast-growing smaller companies,” he says. “Most of them go under the radar of investors.”
The trust currently has 56 holdings, all of which are publicly traded. Montanaro does not invest in non-listed companies. The largest holding is the Swedish accounting software company Fortnox, which dominates its home market. “The more we worked on this business, the more we liked it,” says Cooke. ‘We first invested in September 2017 and then bought more shares in early 2019. It has been so successful that we have had to reduce our stake a bit so that it does not become too dominant in the portfolio. ‘
Cooke, who has his own money in the trust, says most of the portfolio companies are immune from the fallout from the recent Brexit deal. The bigger ‘risk’, he says, is future underperformance against competing funds. This usually happens when the stock markets are in an optimistic mood and don’t award a price premium to the kind of quality companies he prefers.
It’s a point also made by James Carthew, head of investment funds at research firm QuotedData. He says: ‘A focus on quality can mean that you as a fund manager lag behind when investors are engaged in a’ dash for trash ‘. But in the long run, Cooke’s quality approach should pay off. ‘
The trust identification code is 0454351.