Some of the most popular funds in the IMA UK Smaller Companies sector have been criticised by industry commentators in recent months for being quasi mid cap portfolios. Harry Nimmo’s Standard Life UK Smaller Companies fund has more than £1bn assets under management (AUM) and includes FTSE 100 companies in its top-10 holdings.
There have also been warnings from some quarters over the growing size of Giles Hargreave’s Marlborough Special Situations portfolio.
However Jourdan (pictured), who has headed up the £12.5m TB Amati UK Smaller Companies fund since its launch in 2000, says investors can be assured that his fund will remain focused on small caps under his watch.
"As we are small, we can have larger positions in small caps than the larger funds," explained Jourdan. "There is currently an appetite for liquid companies, but this can change over time."
"We are quite contrarian with regards to this – we tend to snap up poor liquidity when people are getting rid of it, and vice versa."
"This has been a feature of the fund for the last 12 years and one that’s much more difficult to do with a larger fund."
Jourdan does hold some FTSE 250 companies, including funeral homes group Dignity and Bank of Georgia, but is predominantly invested in the FTSE Small Cap and AIM indices.
Mid caps currently account for 20 per cent of AUM, according to the manager.
"We’ve struggled a bit over the last 12 months or so because we’ve been a bit more tilted to the smaller end of things."
"All of the momentum has been in mid caps – a lot of money has been pouring into one or two funds, and it’s the mid caps that get bought."
"We find that stocks in this area have run a little too far. We’re in the other end of the market, which hasn’t participated in the momentum-buying."
In spite of the fund’s relative underperformance over the past 12 months – it is up just 5.85 per cent compared with 18.37 per cent from its IMA UK Smaller Companies sector average – Jourdan’s medium- and long-term record is strong.
Performance of fund vs sector over 10yrs
Source: FE Analytics
TB Amati UK Smaller Companies is up 343.65 per cent over the last decade, beating its sector average by 67.55 percentage points. This puts the fund in the top quartile of its sector, although it has been more volatile.
Both Nimmo and Hargreave’s portfolios have delivered significantly more over the period, though it should be noted that both have experienced mass inflows, which could impact their flexibility in the future.
The Amati fund is also a top-quartile performer over three and five years, with returns of 60.08 and 81 per cent, respectively.
Such consistency earned Jourdan FE Alpha Manager status in the latest rebalancing of the rating.
He told FE Trustnet that he would not be able to run the same strategy if AUM went beyond "£150m to £250m".
"We’d like to think that this differentiates ourselves from some of the others," he continued. "You’re looking at £150m to £250m, beyond which this kind of strategy would have to change."
Jourdan says resources companies in the FTSE AIM market are particularly interesting at the moment, and adds that he has been buying them quite aggressively.
"These companies have had a very poor year, but I now think there is some incredible value in them," he explained.
"They are massively out of favour, but it's possible to find some very good ones that are well financed and well run."
"A lot of money has come out of the big resources players in the FTSE 100, which has filtered down into the small cap market."
"In my experience over the last 10 years or so, it’s possible to make a lot of money from this kind of situation, if you can find good quality companies on attractive P/Es [price/earnings ratios] relative to cash-flow."
Among Jourdan’s "hidden gems" are Victoria Oil & Gas, coal producer Beacon Hill, gold mining company Aureus, and gem specialist Gemfields. All have had a very poor run in the short-term, down between 15.44 and 67.63 per cent over a 12-month period.
Performance of stocks over 1yr
Source: FE Analytics
However, on current valuations, the FE Alpha Manager says these companies represent terrific value.
He points to Gemfields' recent acquisition of jewellery franchise Fabergé as a major coup for the business.
"Fabergé is still a loss-making operation, but its value as a brand being able to market and sell gem stones is very strong," said Jourdan.
"[Gemfields’] share price weakened on the acquisition, but if Fabergé can enable the company to get a higher price for gem stones, that will filter back in to the company and improve cash-flow."
Jourdan explains that the buying of these companies has nothing to do with his outlook for commodities prices.
He commented: "We’re investing in the company, not the commodity. If the price goes up then that’s a bonus."
The manager also likes payment processors as a theme, and includes eServGlobal and Earth Point in the portfolio.
The four crown-rated TB Amati UK Smaller Companies fund requires a minimum investment of £1,000 and has an ongoing charges fee (OCF) of just 1.22 per cent, making it one of the cheapest portfolios in the IMA UK Smaller Companies sector.
Jourdan co-manages the fund with Douglas Lawson and David Stevenson, who joined the team in 2008 and 2012, respectively.
"We divide the work up by sector, with each of us bringing our own speciality to the area," said Jourdan.
"This is a very labour-intensive area of investment. There are a lot of hidden gems across the small cap market, which requires a dedicated team. We feel we are very well resourced on that front."