Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The lead manager of the fund is Richard Power, who has been running the fund since its launch in 2007. Richard is directly assisted by Chris McVey and Dominic Weller in addition to the wider Quoted Companies Team at Octopus which consists of 8 investment professionals. The team manage a range of mandates focused on quoted smaller companies, including two AIM Venture Capital Trusts which ensures a good focus on, and understanding of, the smallest quoted companies. Collectively, the team manage £2.2bn.
We invest in small, relatively early-stage businesses. These micro cap companies tend to be sub-100 million. In general, we're looking for companies that can become relevant in their particular sector on a global scale and have the potential to grow to a multiple of the size they are at the point of investment.
Our philosophy is to become long-term co-owners in businesses that are very progressive and will become increasingly relevant in the world. We won't do what some other micro-cap funds might do, which is sell when companies get to a certain market cap. We'll continue to hold them until we think that they have reached a point where all of the upside is in the share price.
That means we've got a core portfolio of companies that are profitable and on a recognisable growth trajectory. We hope those businesses can double their profits in a three to five-year time horizon. A lot of our holdings have been in the portfolio for ten years and have gone up ten, 15 or 20-fold in that time.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
Equity markets get increasingly inefficient during periods of volatility which presents investors with opportunities. That was certainly the case in 2020, and small companies respond well during periods of accelerated change. We therefore remain excited about the prospects for our funds and the asset class over the next few years.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We've got a core portfolio of companies that are profitable and on a recognisable growth trajectory. Our expectation is that these companies can double their profits in a three to five-year time horizon. Many of our holdings have been in the portfolio for ten years and have grown significantly since the original investment. For example, ID verification software provider GB Group has grown its profits from £1mn to over £40mn since the fund invested in 2010. As a result, the market cap of the company has grown from £20mn to £1.8bn over that period. Similarly RWS Holdings, a patent translation business with a market cap of £60mn at the point of investment, is today valued at £2.3bn. Other examples include Future which has grown its market value from £66mn to £1.8bn and Keywords Studios which has grown from £90mn to £2.0bn over the period the fund has been invested.
