Fund Manager Focus by Jenny Lowe

David Clark, whose fund outperformed the sector average in May and boasts strong three, four and five-year records, says a recent ‘spring clean’ of his portfolio – and a renewed focus on stockpicking rather than market themes – has left him more confident about the fund’s performance prospects than at any time over the past six months.

Back to basics
He explains, ‘Since the rally, which did not suit our defensive positioning, we have really gone back to basics and focused on what we do best – unearthing companies that are unloved but have fantastic growth potential. In the past weeks we have been trimming out stocks we like but feel will not perform as strongly as others we have identified. I’m very confident with what we have now.’

Having started his career at Scottish Mutual in 1988, Clark took over the Ignis Smaller Companies Fund four years ago and describes himself as a growth investor: ‘I’m not one to chase macro themes in the market because they don’t tend to suit smaller company investing very well.’

Capital growth focused, Clark says his fund invests in a basket of around 70 stocks. He points out, ‘I am looking for companies that have good strategies and strong management, which are not particularly heavily indebted and have a capital structure to suit the business.

‘The holy grail would be a nicely growing company with good prospects which is relatively cheap. That said, we have to recognise that there isn’t that much about and that brings in another aspect of looking at whether the business is sustainable.’

Optimism, not depression
Clark acknowledges the small-cap arena has had a troubled 12 to 18 months, but now believes ‘Optimism is definitely the word to use now when discussing the market – not depression.’

He adds, ‘Over the past 18 months, all smaller companies have unfortunately been tarred with the same brush and share prices have taken a big hit. The talk of green shoots is overstating it, but government policy is helping and benefiting companies. Clearly a disaster has been averted and I am now genuinely enthused about the prospects for the small-cap market as a whole.’

In terms of individual stocks, Clark highlights Healthcare Locums (one tipped many times on these pages), the UK’s biggest and fastest-growing health and social care staffer, as a company that is well positioned for strong growth in coming years. ‘We have been involved with this company since it came to market and it has been a good one to own. HCL had a good performance last year and has been doing well so far this year.’

He is also optimistic about the outlook for online fashion retailer ASOS, which, despite suffering from a sales slowdown in the quarter to June, bucked the troubled trading of many high street fashion retailers by posting massive sales and profits growth in the year to March. Clark enthuses, ‘While this isn’t a cheap stock, it is certainly a fast-growing one and is well placed to benefit from the underlying dynamics of the online market place.’

Moving away from business sectors, Clark is confident of the growth potential for companies within the Indian energy sector, such as oil and gas production firm Great Eastern Energy.

According to Clark, ‘The biggest problem currently facing India is that, while GDP is growing, they have nowhere near enough power to supply throughout the day. Firms like Great Eastern Energy and OPG Ventures are already benefiting from the region.’

Over the mid to long term, Clark remains positive on smaller companies, suggesting ‘Investors with a decent term horizon of a couple of years will do very well. A lot of companies have been tarred with the same brush during this downturn and their share prices have suffered, but they are starting to come back now.

‘However, if you are in it for a quick killing, you are dicing with danger.’