Investec's Evans Unveils Overhaul Of UK Smaller Companies Vehicle

Previously, the fund was managed using the firm's 4Factor process before Evans was hired from Columbia Threadneedle Investments to be reunited with former colleagues Simon Brazier and Blake Hutchins at Investec Asset Management.

At Columbia Threadneedle he co-managed the UK Smaller Companies and UK Mid 250 funds from December 2013.

Alongside this, he was sole manager of the Threadneedle Ethical UK fund, as well as co-portfolio manager of a number of institutional mandates.

Evans joined Investec AM last September and spent two months researching stocks in the existing portfolio, checking his preferred ideas were at the right valuation and assessing fresh ideas before setting to work on re-shaping the portfolio in November.

The fund had 8%-10% invested in overseas stocks, which Evans said was his first and "easiest sale".

"The small-cap universe consists of 1,500 companies so we have a very broad set of ideas. I am not ruling out overseas stocks for the future but my skillset is in the UK," he said.

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After a strong run for smaller companies, Evans said he is still finding plenty of opportunities despite "some pretty toppy valuations".

"I am looking for good quality businesses with quality characteristics but within small-caps, valuation is also a critical part," he said.

Some of the new additions to the portfolio include a number of retail and leisure names, although Evans noted the struggling High Street and unfavourable consumer spending background.

"I think we have reached a peak in people buying stuff as the consumer is becoming more discerning. They want value but they also want really good quality. They are also spending less on items and more on experiences."

As a result, he has introduced Hollywood Bowl for its "very focused management team, clear business model and investments to improve the bowling alley experience".

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He has also been impressed with how the management has been willing to experiment, such as with 'pins on strings' rather than using machinery, which reduces downtime for bowlers and cuts operating costs.

Hotel Chocolat is another new holding in the portfolio, which Evans said can be justified as an "expensive retailer" and is a stock he has invested in since IPO in 2016.

"We like founder-run businesses and this is one of those - the management have a tight understanding about capital allocation and are comfortable investing for the long term," he said.

He has also added Ted Baker, another founder-managed business that Evans said is a diversification opportunity as 50% of its profits come from overseas.

Overall, Evans said he has changed 30%-50% of the portfolio but the number of holdings remains similar - down from 72 names to 65.

"I expect to be operating with 60 to 80 holdings so I can see that number edging up a bit," he added.

In terms of outlook, he noted that although valuations are quite high, small caps are prone to swings in price, thereby offering buying opportunities.

"There are some really good ideas out there. Valuations are high so we are cautious but things can change quite quickly in this universe. You have to be focused on what you want and be ready to build that position as the opportunity comes up," he said.