Gold and oil stocks were key drivers of performance on the SF t1ps Smaller Companies Growth fund, according to Tom Winnifrith, the manager.
The £8m vehicle is a concentrated portfolio of 35 small-cap stocks with a heavy overweight to gold. Winnifrith began building the position late last year and is considering adding to his holdings in the sector.
“We were heavily overweight gold in the autumn and, although we are not now buying gold stocks, we may increase our holdings slightly as we think it will go up,” he says. “We bought into it when it was out of favour—at $700 [an ounce] we were getting a bargain.” Current gold plays in the fund are Centamin Egypt and Medusa Mining.
Elsewhere in the commodities sector, Winnifrith favours oil production and exploration firms, including Leni Gas & Oil and Northern Oil & Gas.
“Oil fell below $40 a barrel. Merrill Lynch was saying it would go to $25, and people panicked. We knew it would bounce—it would not be sustainable to stay at $40,” he says. Leni Gas & Oil is a company with a market cap of £20m that Winnifrith was able to pick up from a forced seller, and has since done well for the fund, he says.
However, Winnifrith says these plays are not the result of macro calls, and emphasises that he selects stocks on a company-by-company basis.
Small caps as an asset class saw a resurgence in popularity recently as markets begin to stabilise.
Winnifrith says: “Small caps were ludicrously cheap in the autumn. Markets were pricing in complete Armageddon, so we were buying aggressively at that time as we thought markets were over-discounting risk. We bought companies at a discount to cash, and you aren’t going to lose money doing that. Those companies have bounced and are on an ex cash P/E [price/earnings multiple] of one or two. So we do see value in the sector.”
The SF t1ps Smaller Companies Growth fund launched in November 2007 and has seen net cash inflows every month since inception, Winnifrith says.
Over the year to June 17, it has delivered a positive return of 20.5% against the Investment Management Association (IMA) UK Smaller Companies sector average fall of 24.1%.