Companies: AI.    BPP    INGG    STY   

Unique companies with strong expertise in particular areas are the order of the day for Stewart’s UK Smaller Companies Fund, launched in July to invest mainly in companies quoted outside the FTSE 350. Most of these ventures will have a market cap of between £50 million and £500 million, but Stewart will push the limit to £1 billion in the right circumstances.

Explaining the lack of bias towards any particular sector, she says, ‘All the companies that we invest in are really quite different and each has to justify its position in the portfolio. Therefore, diversification comes from having a list of companies that are, as far as possible, not correlated.’

In the turbulent markets of 2007, this is perhaps a sensible stance, and the fund could prove a sensible play for investors looking for greater stability. ‘We are not negative on equity markets, but we think there will be a slowdown,’ Stewart explains. ‘We are cautious about certain areas, especially those priced on future upswings that must happen for them to be successful. We are looking for companies that are able to carve out their own trajectory; those that can give the portfolio some insulation against any slowdown.’

Insulation through variety
And when it comes to discussing the specific holdings, Stewart certainly doesn’t disappoint in the variety stakes. First on the list is Aero Inventory, one of a growing number of outsourcing companies servicing the airline industry. The AIM-quoted group manages spare parts inventories for the servicing of planes, transporting the parts and managing their storage at hub airports. Stewart adds, ‘Aero Inventory secured a significant contract with Qantas last year and it has secure finance lines in place. This means it can afford to take on more new clients.’

Another holding, BPP, will be familiar to anyone involved in the legal or financial professions, since the company provides training in these areas in the form of private postgraduate courses. BPP has recently opened a new law college in Manchester, in addition to its study centres already up and running in locations around the world. ‘It benefits from the trend and demand for continuing professional development,’ says Stewart. ‘BPP has also just been given permission by the Government to develop undergraduate degree programmes.’

Be inspired
Stewart’s fund also has exposure to more consumer-reliant sectors, such as leisure and gambling – through AIM counter Inspired Gaming – and retail, albeit indirectly, through £127 million property services provider Styles & Wood. ‘Inspired Gaming is a software company that does server-based gaming software for machines in leisure outlets, such as pubs – it is not an online gaming company in any way!’ she assures.
‘These machines operate from a central server and so the games can be updated more often. This is setting a trend to convert from stand-alone machines to those using a central server.’

According to Stewart, Styles & Wood is taking advantage of increased competition on the high street at the moment. The company offers planning and fitting-out services, as well as project management initiatives such as planned store maintenance, and seasonal promotions and decoration. Stewart explains that, as a result, the firm has the opportunity to provide ongoing services to its clients, not just one-off business. ‘There are a lot of multi-branch high street chains with huge property portfolios that are continually doing asset management. Styles & Wood can help with the fitting out and with the planning.’