This week has seen award-winning small-cap fund manager Gervais Williams sell off more than £1m worth of shares in his employer Miton Asset Management. Is this an indication of harder times to come for AIM?
Williams, who cut his teeth managing investments in small-to-medium sized firms at Gartmore for 17 years, sold off 2,178,219 shares in Miton at 48.1p each, as part of the company’s share buyback programme. His move follows an extremely difficult second half of 2018 for AIM, with a bearish commodity environment suffocating liquidity and an increasing number of firms struggling to raise money.
Many are now, quite rightly, concerned about what next year will bring, not least because of the ongoing, and escalating, tensions between the US and China. Indeed, many commentators argue that the rift between these two global superpowers risks slowing global economic growth. This would, in turn, cut demand for industrial metals. As we all know, such commodities are integral to the make-up of AIM.
On the other hand, contrarian observers have taken a ‘this too shall pass’ approach to the market environment. They argue that Trump’s pram-toy-throwing rhetoric and its impact on markets globally simply provides an opportunity to bolster positions in stocks that they have already bought into on the basis of fundamental strength and potential.
So, where does Miton’s approach fit into this dynamic?
Williams, an investor who also counts ‘author’ among his CV credentials, has built a career around backing junior firms. As we all know, this investment strategy can generate fruitful returns through thick and thin, provided you back the right names and are willing to take a long-term approach. That Williams is choosing to take money out of the market now seems significant.
If his action is a bellwether, it is a warning sign to the rest of us that the professionals see more risk than reward out there at the moment. Although it is true that Williams hasn’t cashed in all his chips, taking £1million personally off the table surely reflects a lack of confidence in the potential for returns next year and possibly beyond.
Whatever the case, this is certainly an environment for very careful stock picking. Miton’s portfolio approach is vulnerable to a change in tide. If the wider market continues to drop, then it stands to reason so too will Miton’s returns. For the nimble private investor, who typically holds far fewer lines of stock, this can present an opportunity. Good, well-run companies can still perform well in bear markets.
The trick is to find those companies, whose business models are (at least somewhat) insulated from market turmoil.
Unfortunately for most of the companies on AIM this is not the case, which is no doubt why Williams has cashed in while he could.
Authors: Daniel Flynn & Ben Turney
Disclosure: The author of this piece does not own shares in any of the companies mentioned