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

It is all change at UK fund manager Tellworth. The business, set up seven years ago by Paul Marriage and John Warren with the backing of investment boutique BennBridge, has just been bought by rival Premier Miton.

As part of the deal, Marriage and Warren, both fund managers, will stay on while BennBridge will exit. Over the summer, Tellworth will vacate its London offices and move into Premier Miton’s offices in the shadows of St Paul’s.

‘It’s a good move for us,’ says Marriage. ‘We are now part of a bigger business with a strong balance sheet and a big salesforce prepared to market and sell our funds.

‘Yet we haven’t just been absorbed into the Premier Miton investment machine. Our five funds will remain as they are. For fund investors, nothing will change.’

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

Marriage is manager of investment fund Tellworth UK Smaller Companies, alongside Warren and James Gerlis. Launched in late 2018, it has assets of £125 million and invests in companies in the bottom 10 per cent of the stock market by market size. ‘We hold 46 stocks at the moment,’ he says. ‘The average market capitalisation 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 stock represents more than 3 per cent of the portfolio, we tend to start selling it down. It is unusual for us to have more than 4 per cent of the fund in any one individual stock.’

Using a rugby analogy, Marriage says the fund’s portfolio splits into three teams. ‘At the top, we have the first XV, our best-performing stocks, but with some coming to the end of their purposefulness,’ he says. ‘Then we have the second XV, some of which will make it into the first team while the academy XV is made up of future first-teamers and those that go nowhere.’

Among its current first XV is training and education company Wilmington. The fund took a stake in it 18 months ago and it has so far made a profit on the holding in excess of 30 per cent – against the backdrop of a ‘dreary stock market’. 

‘I feel there is a lot more to come from this stock,’ says Marriage. ‘It’s a high-quality business. It could get bought by private equity at a big premium to its share price, which would be good for the fund, but we would prefer to keep holding it.’

Marriage and Warren adopt a six-month rule with regards to holdings. In simple terms, if it does not perform well in its first six months, it is jettisoned. ‘When you are investing in UK smaller companies,’ says Marriage, ‘you want to avoid those stocks that fall in value by 80 per cent or more.

‘Our rule reduces the chances of this happening by cutting losses early.’ Companies that have either respectively survived or fallen foul of this rule are chainmaker Renold and publisher Future.

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

‘It’s not a bad time to get some exposure to UK smaller companies,’ he says. Over the past one and five years, the fund has delivered respective returns of 10 and 19 per cent. Over three years, it has recorded losses of 15 per cent. Annual charges are just over 1 per cent.

This post first appeared on Dailymail.co.uk