TELLWORTH UK SMALLER COMPANIES: Fund that buys when companies are ‘toddlers’ (and sells when they are teenagers)

It’s all change at British fund manager Tellworth. The company, founded seven years ago by Paul Marriage and John Warren with the backing of investment boutique BennBridge, has just been bought by rival Prime Minister Miton.

As part of the deal, Marriage and Warren, both fund managers, will stay on while BennBridge will leave. Over the summer, Tellworth will leave its London offices and move to Prime Minister Miton’s offices in the shadow of St Paul’s.

“It’s a good move for us,” Marriage said. ‘We are now part of a larger company with a strong balance sheet and a large sales team prepared to market and sell our funds.

‘Yet we are not simply included in Premier Miton’s investment machine. Our five funds will remain as they are. Nothing will change for fund investors.’

In terms of assets under management, Premier Miton’s £10 billion pales in comparison to Tellworth’s more modest £550 million.

Marriage, alongside Warren and James Gerlis, is manager of the Tellworth UK Smaller Companies investment fund. Launched in late 2018, it has assets of £125m and invests in companies in the bottom 10 per cent of the stock market, as measured by market size. “We currently own 46 shares,” he says. ‘The average market capitalization is around £300 million and the idea is to buy companies when they are toddlers – and then sell them when they are teenagers, hopefully at a profit.

‘When a share represents more than 3 percent of the portfolio, we tend to sell it. It is unusual for us to have more than 4 percent of the fund in one individual stock.”

Using a rugby analogy, Marriage says the fund’s portfolio is split into three teams. “At the top we have the first XV, our best performing stocks, but some are at the end of their targeting,” he says. ‘Then we have the second XV, some of which will make it to the first team, while the academy

The current first XV includes the Wilmington training and education company. The fund took a stake in the fund 18 months ago and has so far made a holding profit of more than 30 percent – ​​against the backdrop of a ‘gloomy stock market’.

“I feel like there’s a lot more to come from this stock,” Marriage says. ‘It is a high-quality company. It could be bought by private equity at a large premium to the share price, which would be good for the fund, but we would prefer to hold it.”

Marriage and Warren have a six-month rule regarding assets. Simply put, if it doesn’t perform well in the first six months, it’s jettisoned. “If you’re investing in smaller UK companies,” says Marriage, “you’ll want to avoid stocks that fall in value by 80 percent or more.

“Our rule reduces the chance of this happening by limiting losses early.” Companies that survived or fell foul of this rule include chain maker Renold and publisher Future.

The fund manager is cautious about an impending renaissance in the fortunes of small UK companies in the stock market. But he is encouraged that there are plenty of buyers willing to buy the companies his fund invests in.

“It’s not a bad time to get some exposure to smaller UK companies,” he says. Over the past one and five years, the fund has achieved returns of 10 and 19 percent respectively. In three years it has recorded a loss of 15 percent. The annual cost is just over 1 percent.