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‘My investing secret? Only buying British firms’

·4-min read
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Investors would be forgiven for fearing a bleak winter for British shares as the supply chain crisis causes economic disruption and the threat of “stagflation” looms.

But Paul Marriage, a veteran investor in smaller companies listed on the London stock market, is not one of them.

Mr Marriage ran the Schroder UK Dynamic Smaller Companies fund from 2006 to 2017 and make 435pc for investors over that period, nearly four times the 114pc from its benchmark, the FTSE Small Cap index.

He left Schroders to set up his own fund firm with long-time colleague John Warren; they launched ­Tellworth and its UK Smaller Companies fund in 2018. The pair have got off to a solid start, beating the returns of the stock market over the past three years.

Telegraph Money catches up with Mr Marriage to find out how the supply chain crisis is affecting the companies he invests in and why he avoids overseas companies even if they are listed on London’s stock market.

Who is the fund for?

It’s for anyone who appreciates the rewards – and risks – from investing in Britain’s small companies. They pose higher risks than shares in London’s largest listed firms but over the long term have delivered much higher returns. That’s why most investors will always have some small companies in their portfolio.

How do you pick stocks?

Broadly, we invest in two types of company. The first are firms that offer a unique product and spend money each year on making it better.

They are market leaders in their fields, generate lots of cash and are run by management teams whose interests are aligned with ours. Around half of our portfolio of 66 stocks consists of companies of this kind.

The second are “value” opportunities. These firms may not be market leaders but they are good at what they do and we think the stock market is pricing their shares too cheaply.

Are there any types of company you avoid?

We’ve never invested in oil, gas and mining companies, biotech stocks or overseas companies – even if their shares are listed in London.

Small oil and gas companies can deliver high returns but the risks are too high for us to invest. Equally, some biotech stocks may look exciting but only a handful of people really understand the science behind successful drugs.

We also avoid loss-making firms, only making an exception if we believe the company is within a year of ­delivering a profit.

While there’s nothing wrong with overseas companies, there are enough British stocks not to have to worry about travelling to the other side of the world to see a company whose shares happen to trade on London’s junior Alternative Investment Market, for example.

What’s been your best investment?

Watches of Switzerland. We have made 367pc from shares in the watch retailer since we bought them in the company’s stock market flotation in 2018.

We typically invest in companies with a market value of between £100m and £500m. Watches of Switzerland was at the upper end of that range when we bought the shares and now it is worth £2.6bn.

It’s a niche retailer that excels in its specialism and can fight off generalists such as Amazon. The shares took a while to get going, but that’s often the case with newly floated companies.

And your worst?

We invested early in a company called LoopUp, a conference calling business, which floated on the stock market in 2016. In retrospect, forecasts for the business were too optimistic and the company delivered a couple of profit warnings.

We sold our shares at a 82pc loss just before the pandemic, when working from home boosted its business.

How will the supply chain crisis affect British stocks?

We speak to lots of companies about this and every one has a different story about how it has affected them.

There’s a lot of noise, but most of the companies we’ve met are managing. Firms are increasingly aware that long supply chains from Asia are potentially quite dangerous and a few are thinking about bringing their manufacturing processes closer to home. Profits may be hit this year but they should recover in 2022.

What would you be if you weren’t a fund manager?

I come from a farming family so I would probably have ended up doing that.

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