Richard Troue: Small can be beautiful if you're looking for growth

The Analyst

The capacity to innovate or capitalise on niche opportunities is vital to business creation and development. The largest companies in an industry might grab the headlines, but smaller firms are often the innovative force behind new technologies and products.

Smaller and medium-sized companies are the real engine of economic growth. They can spring up to cater for new industries, or adapt quickly to take advantage of a niche in an existing industry.

Many of the UK's most fascinating companies operate behind the scenes. They perform essential functions, often supplying parts, specialist services or equipment that larger companies find it inefficient to produce themselves or own outright. Some have the potential to become the industry giants of tomorrow. Others will thrive as smaller entities.or be taken over by larger rivals.

The long-term potential in this area of the market is huge, both among companies listed on the stock market and those still in private hands. The shares of unquoted companies are generally not offered to retail investors. They tend to be held by a small group, including founding family members and staff. Shares don't change hands regularly, making them illiquid. On the other hand, small and unquoted companies are less well researched, and dedicated investors can find unique opportunities to invest in promising businesses at discounts to larger or listed peers.

One way to gain exposure to this sector is through an investment trust. The closed-end structure means managers don't have to deal with daily inflows and outflows, enabling them to take a long-term view on unquoted, small and illiquid investments. Risk is spread across several companies and expert fund managers monitor holdings on your behalf. Risk is not entirely eliminated, however. Some companies will take longer to bloom; others will inevitably fail.

Artemis Alpha Trust has been managed by John Dodd and Adrian Patterson since its launch in May 2003. They invest predominantly in UK companies, but tend to have a bias towards smaller and unquoted businesses, at 45 per cent and 30 per cent respectively. The portfolio is diversified, with more than 100 holdings, but the managers back their strongest ideas with conviction, and will build big positions in individual sectors or stocks. This means performance can differ markedly from the FTSE All Share benchmark.

Mr Dodd has specialised in the energy sector throughout his career, so it is not surprising to see about 38 per cent of the portfolio invested here. Four of the top five holdings are energy companies. Hurricane Energy, an unquoted company which has discovered oil west of the Shetland Islands, is the largest at 6.9 per cent. Providence Resources and Africa Oil also feature. The former is an AIM-listed stock involved in oil production in the UK and off Ireland. The latter is a Canadian-listed company exploring for oil off Africa.

Elsewhere, Messrs Dodd and Patterson are focusing on companies with strong management, overseas earnings and an online presence. The Hut Group, also unquoted, is the UK's leading multi-website online retailer, spanning women's fashion, health and beauty and entertainment. It generates 35 per cent of its sales overseas and accounts for 4.2 per cent of the portfolio.

Mr Dodd and Mr Patterson also use ideas from other Artemis fund managers, giving them further experience and resources. The Artemis investment team holds roughly 18 per cent of the trust's shares personally.

This is a higher-risk trust aimed at adventurous investors. In addition to large holdings in illiquid, unquoted companies and more volatile smaller businesses, the managers borrow money to invest (also known as gearing). This adds risk to the portfolio, exaggerating both rises and falls in value. Gearing currently stands around 15 per cent. At the time of writing the trust stands on a 7.1 per cent discount to net asset value.

I view this as a well-managed trust providing exposure to companies with excellent growth prospects. For those able to tolerate the additional risk, a small position tucked away for the long term could add some spice to a well-diversified portfolio.

Richard Troue is an investment analyst at Hargreaves Lansdown (

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drink
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas