Renowned fund manager Gervais Williams believes smaller companies hold the most growth potential in times of economic stagnation.
The Alternative Investment Market (AIM) is about to become the leading smaller companies market in the world, fuelling a multi-decades long boom period for smaller quoted companies.
This was the takeaway message from award-winning fund manager Gervais Williams at the launch of his second book on investing, ‘The Future is Small.’
He argued that the world is entering a ‘growth shadow’ in which larger companies will be increasingly trapped by their flatline sales, despite numerous government strategies to spur the economy back to life such as growing budget deficits, quantitative easing (QE), and record low interest rates.
‘It’s a big challenge- how can we as an industry deliver for our client in a world that is going ex-growth?’ said Williams.
‘We’re incredibly lucky to have AIM, one of the world’s most developed exchanges for genuinely small companies. It is a ray of light in a troubled world, not because every year there are some tiny stocks that feature among the UK’s top stock market performers- but rather because smaller companies in general have more growth potential than large businesses.’
With larger companies running out of steam, Williams believes UK investors will begin to invest around 15% of their portfolios into microcap stocks, since historically this is where the best performance has been during troubled economic times, such as the two oil shocks in the 1970s.
‘Small and microcaps saw us through because some can grow even when the economy is flat,’ said Williams. ‘They outperformed because being quoted they had access to extra capital at a time when most private companies were capital constrained.’
Those smaller companies also attracted sustained institutional support because they were able to grow their dividends at a time when most larger companies were trapped in flat-lining sales.
And boosting investment flows into the smallest companies has a knock-on benefit for the UK’s economic growth and job market as a whole, said Williams, as smaller companies tend to be domestically focused.
Williams manages leading funds with a combined valye of around £1 billion, including CF Miton Smaller Companies fund, Diverse Income Trust and the CF Miton UK Multi Cap Income Fund.
He is also managing director of the Miton asset management group and has been an equity portfolio manager since 1985.
Williams’ latest book develops on the radical rethink on the investment market aired in Slow Finance, published in 2011.
His first book outlined how, in an era defined by slow economic growth, investors should be looking for smaller, local companies over bigger international players with heavy debt and complex products.