When small beats large: Why CRUX have launched a Smaller-Companies fund
Small car, huge win: it is now almost 60 years since one of the most spectacular victories in the history of international motor sport. On 21 January 1964, the Mini Cooper S won the Monte Carlo Rally for the first time.
It was the pairing of Northern Ireland's Patrick “Paddy” Hopkirk and his co-driver Henry Liddon that pulled off the big surprise, resisting the supposed superiority of significantly more powerful rivals in their small British car.
In Paddy Hopkirk’s own words “Although the Mini was only a little family saloon, technically it had a lot of advantages. The car was right, everything happened at the right time and came together at the right moment.”.
We believe that the Mini Cooper is the ideal mascot for the launch of the TM CRUX UK Smaller Companies Fund and is the perfect example of how small beats large, especially when everything happens at the right time and comes together at the right moment.
The outlook for corporate Britain has deteriorated, the news headlines couldn’t be more negative, and investors are pulling their money out of the market at record pace. The worst hit shares are Small and Micro-cap companies, companies with less than pristine track records, growth companies and difficult to understand companies, in sectors such as technology and healthcare. These shares come under heavy pressure, pressure that is exacerbated by institutions selling at almost any price in order to fund redemptions.
We have recently been looking at a high-end pub company with pubs in upmarket parts of London and various other cities in the south of England. The high-quality pub estate was conservatively valued at £150m at the beginning of 2022. Despite this, the market cap. of the company fell to just £56m in mid-September, despite remaining profit-making, the balance sheet being in incredibly healthy shape, management buying back shares and the tailwind of Christmas and the football World Cup to come. Since the mid-September lows, the shares have rallied almost 50% and remain at attractive levels.
Although the market may not have yet found the bottom, individual companies are starting to find their floor, and have the ability to bounce aggressively as investors regain rationality. Our new Small-Cap fund provides an opportunity to build a portfolio of high-quality British businesses, at incredibly attractive entry levels. Small companies, huge potential.
‘Please note the views and opinions expressed in this article are based on CRUX’s research and analysis and therefore represent the point of view held by CRUX at the time of publication’.