Finding the opportunities in UK small and micro cap companies is the main focus of Livingbridge’s Ken Wotton.
He manages the LF Livingbridge UK Micro Cap Fund, launched in 2009, and the LF Livingbridge UK Multi Cap Income Fund, launched in 2017. The Equity Funds business defines micro caps as companies with a market capitalisation of below GBP250 million and listed on the AIM market or main LSE market.
The Livingbridge UK Micro Cap fund has enjoyed a four-times return since launch in 2009 and is in the top five of small companies funds on a rolling five year basis.
“We are trying to secure good capital gains and long-term performance but also consistency and good risk adjusted returns,” Wotton says. “We are trying to reduce the volatility in what is inherently a higher risk asset class.”
Wotton reports that the last couple of years have generally been good for new companies.
“Since the fund launched, the first couple of years were moribund and we didn’t see massive amounts of good quality companies coming to the market but from 2013 onwards it picked up and we are seeing a fairly steady flow of decent businesses IPOing at sensible prices.”
This is partly down to private equity firms looking to exit or founder management owned businesses seeking to raise capital and preferring the equity route as they retain control of their businesses.
“It’s a decent and buoyant environment with plenty of new opportunities,” Wotton says. “We have an economy where there is a good entrepreneurial spirit with lots of companies seeking capital to do interesting things and we’re able to play a part to help foster that”
Livingbridge understand this space, investing in growing SMEs across its business, through public equity funds, private equity funds and its Baronsmead VCTs.
Crucial to any decision to invest is the quality of the management team within a company. “We are invested in sectors that are typically service businesses which are less cyclical and where the management team has control of their own destiny. We avoid mining, oil, gas or early stage biotech where something external can make or break the investment.
“We try to find businesses that are in structural growth areas where the success is down to strategy and the quality of the management.”
The beauty of the area that Wotton is focused on, he believes, is that it is constantly reinventing itself, replenishing with new opportunities.
“There are loads of companies but also the composition is changing the whole time. There are only a small proportion of companies here today that were there 10 years ago because they are growing or because they are being taken out through acquisition, or going bust. The universe changes the whole time but management quality doesn’t change over time – our job is to try and pick the ones who can last and grow their businesses over the longer term.”
“We take a long term view with our investments and our approach is based on the quality of the team and the value we believe they can create over the long term. We ground ourselves in the fundamentals of the business and are not overly affected by sentiment.”
“As a business we are unique with our combination of private and public investments. We have quite a big internal resource of 50 investment professionals evaluating UK small businesses with a smaller team focused on public equities.”
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