Reputations are forged in adversity, according to Dr Paul Jourdan, the chief executive of Amati Global Investors, with the pandemic crisis providing a “key test” for fund managers.
A veteran of the sector, the former professional violinist has this advice to those who don’t carry the scars from last great financial meltdown: “If you are going to panic, panic early.”
By that, he means don’t get involved in the melee of selling when the market is at its most turbulent. “Almost every decision you make when things are so crazy is wrong,” he explains.
So, in doing a little early panicking in February the Amati team offloaded a couple of stocks to lock in investment gains and free up cash.
These were stocks he and the team liked, and it was uncertain at the time the looming storm caused by the coronavirus pandemic would actually “make landfall”.
“We did not panic late, which is a good thing,” says Jourdan. Neither did he and his colleagues ‘over-trade’ during the hurly-burly that forced the FTSE 100 to a low of 4993.89 on March 23, having been at 7674 in January.
“It is a difficult decision to stand still when others are in a frenzy of activity,” says Jourdan.
There were mistakes too, he admits, including having acquired consumer-exposed investments in January in Amati's UK smaller companies fund, expecting them to benefit from a post-election uptick in spending.
But the March performance of its AIM VCT fund, which has a turnover of below 5%, reveals the mistakes were outweighed by the Amati team’s clearheaded approach to crisis management.
For while the benchmark (the Numis Alternative Markets Index) lost almost 21% of its value, the fund fell by just 13%.
Healthcare a 'winner'
This outperformance was due in part to the portfolio’s “overweight exposure” to healthcare companies, including two specialising in disinfectant products Other Amati investments were focused directly on the fight to beat COVID-19.
Jourdan said the coronavirus chaos has resulted in a “bifurcation” between the old and new economies, with the latter winning out. These research/tech firms have been able to carry on during lockdown, where some of the more traditional businesses have taken a hit.
So, games companies such as Frontier Developments and also Keywords Studios, which provides picks and shovels support services to the likes of Frontier, have proven resilient.
“If you have no online strategy, you look high and dry now,” Jourdan says of the ‘old economy’ stocks such as retailers, which used to provide the bedrock for diverse and prudent investment portfolios.
Amati runs two funds, the aforementioned AIM VCT (LON:AMAT) and a smaller companies’ fund. The latter focuses on “anything outside the FTSE 100”, though Jourdan says “80% of the fund will normally be in the bottom 10% of the market”.
Larger and liquid
Ahead of last month’s market collapse, Amati’s small-cap operation had moved into larger, more liquid investments it could trade out of quickly as it feared the bull cycle had run its course.
“When we get a resetting of the clock as we are now, it is often worth revisiting the smaller end of the market,” says Jourdan, hinting at what may happen over the coming months and years.
Turning to the AIM VCT, and his ethos, Jourdan offered up some investing nuggets that are relevant to the private investor when assessing the potential of perceived riskier stocks on London’s junior market.
Investee companies should share some of these characteristics, he says. They should:
• Have a core domain, or intellectual property (Warren Buffett calls this the moat that protects the firm)
• Have strong founder-managers with skin in the game (a chunk of the company)
• Be well-financed and transparent with closely policed financial controls
• Be in an area of commerce that “really matters”
AIM divides opinions, with the critics believing it is too expensive for fledgeling businesses. There are also complaints there is a casino element when it comes to investing in the microcaps.
AIM world-class for fundraising
Jourdan believes the LSE’s “alternative” market is world-class in one crucial regard – and that is providing the lifeblood access to cash: “Generally speaking, our system is better than most other exchanges.”
The strategy in the teeth of the storm across in Amati's UK smaller companies fund was to reduce areas that would be most exposed to the consumer downturn. In doing this it was left with higher than normal levels of cash (around 12.5% at the end of March).
While money has been ploughed back into the market picking up bargains on the way, Jourdan is happy to play a waiting game.
“We are continually on the lookout for value,” he explains. “We did a little bit of buying during the panicky days, and with hindsight should have done more.
“But we were determined not to over-trade. We were determined not to get into a situation we were just trying to chase the big day-to-day moves in the market.”
There speaks the voice of experience.