In
this
series
of
short
profiles,
we
ask
leading
fund
managers
to
defend
their
investment
strategies,
reveal
their
views
on
cryptocurrency,
and
tell
us
what
they’d
never
buy.
This
week
our
interviewee
is Gervais
Williams,
fund
manager
of
the
Diverse
Income
Trust
(DIVI),
which
has
a
Morningstar
Star
Rating
of
4.
Which
Sector
Shows
the
Biggest
Promise
in
2024?
That’s
easy.
UK
smaller
companies
have
outperformed
the
mainstream
stocks
by
a
large
margin
since
consistent
UK
stock
market
data
was
first
collected
in
1955.
With
the
scale
of
ongoing
UK
fund
sales
over
the
last
two
or
three
years,
smaller
companies
have
underperformed
dramatically.
When
the
local
selling
fades,
we
expect
UK
smaller
companies
to
have
a
major
catch-up.
As
it
happens,
since
September
2020,
the
return
on
the
FTSE
100
index
has
largely
matched
the
returns
of
the
best
of
the
international
comparatives,
such
as
the
S&P
500,
the
NASDAQ
100
or
the
Stoxx
50.
If
this
pattern
continues,
and
if
anything,
we
expect
the
FTSE
100
outperformance
to
accelerate
in
future,
then
it
will
outperform
all
other
comparatives,
whilst
UK
smaller
companies
outperform
the
FTSE
100,
and
become
the
best
performing
part
of
one
of
the
best
performing
mainstream
stock
markets
worldwide.
As
you
will
note,
we
are
somewhat
upbeat!
What’s
the
Biggest
Economic
Risk
Today?
Recent
economic
data
implies
that
global
growth
is
slowing,
and
inflationary
pressures
are
moderating.
Many
investors
are
now
hopeful
the
global
economy
will
avoid
a
significant
recession.
In
my
view,
the
biggest
risk
at
present
is
that
underlying
inflationary
pressures
remain
more
persistent
than
hoped.
In
the
Autumn
Statement
for
example,
the
Chancellor
raised
the
National
Living
Wage
by
10%,
which
is
well
above
underlying
inflation,
and
as
such
could
boost
UK
wage
inflationary
pressures
next
year.
Persistent
inflation
during
an
economic
recession
is
known
as
stagflation
and
became
a
persistent
problem
during
1970s.
I
see
stagflation
as
the
biggest
economic
risk
today.
Describe
Your
Investment
Strategy
Over
very
long
time
periods,
the
return
on
stock
markets
can
be
wholly
explained
by
two
factors.
The
initial
yield
at
the
start
of
the
period,
and
how
much
it
has
grown
subsequently.
In
order
to
outperform,
all
a
fund
has
to
do
is
either
to
offer
a
yield
that
is
currently
above
that
of
the
mainstream
stock
market
and
grow
that
dividend
at
a
slightly
faster
rate
than
others.
The
funds
I
manage
with
Martin
Turner
seek
to
deliver
these
objectives.
We
believe
that
investing
right
across
the
full
range
of
UK
quoted
companies,
including
stocks
that
are
overlooked
on
account
of
their
lesser
market
capitalisations
can
deliver
better
yields
and/or
better
dividend
growth.
Which
Investor(s)
Do
You
Admire?
I
have
always
admired
Benjamin
Graham,
the
fund
manager
and
author
of
The
Intelligent
Investor. Few
investors
appreciate
that
the
real
return
on
the
S&P
500
Index
over
the
50
years
to
1950,
was
zero
in
real
terms.
Yup,
your
read
that
correctly.
The
total
return
on
the
mainstream
US
stock
market
between
1900
and
1950,
after
deducting
inflation,
was
zero!
As
fund
managers,
we
may
lament
the
odd
disappointing
years
for
markets.
For
a
large
part
of
Benjamin
Graham’s
career,
he
had
one
difficult
year
after
another.
And
yet
he
found
ways
in
which
he
could
consistently
add
value
for
his
clients.
Methods
to
generate
an
absolute
return
in
contrast
to
a
near
nothingness
from
the
mainstream
stock
markets
is
so
impressive.
Name
Your
Favourite
‘Forever
Stock’
Most
tests
on
hospital
testing
machines
are
produced
by
the
machine
manufacturer.
But
sometimes
the
results
of
the
generic
test
are
somewhat
variable,
and
at
these
points
other
independent
companies
can
develop
their
own
tests,
that
have
the
potential
of
displacing
the
generic
test.
Bioventix
(BVXP)
is
just
such
a
company
and
has
brought
a
series
of
highly
successful
tests
to
the
market.
And
when
they
become
established,
the
hospitals
use
these
tests
year
after
year.
So,
Bioventix’s
revenues
consist
of
new
tests
being
layered
on
prior
year
successes.
Since
the
end
of
December
2012,
its
growing
dividend
income
and
share
price
appreciation
has
totalled
more
than
21-fold.
This
is
a
rate
of
return
of
over
33%
per
year,
which
compares
with
something
like
25%
per
annum
for
Apple
over
the
same
period.
And
yet,
the
market
capitalisation
of
Bioventix
is
still
only
around
£200
million.
That’s
a
good
example
as
to
why
we
include
smaller
companies
in
our
clients’
portfolios.
What
Would
You
Never
Invest
in?
We
always
avoid
anything
where
the
company’s
operations
appear
to
be
at
odds
with
the
spirit
of
the
government’s
regulations.
In
the
past,
some
gaming
companies
have
operated
in
what
they
described
as
‘grey
markets’,
where
governments
hadn’t
got
legislation
that
specifically
excluded
their
activities,
but
where
they
were
unhappy.
PartyGaming
was
an
IPO
with
these
kinds
of
activities,
that
were
described
in
the
prospectus.
In
our
view,
these
kinds
of
stocks
shouldn’t
be
listed,
and
in
the
case
of
PartyGaming,
its
share
price
delivered
very
poor
returns
in
time.
Growth
or
Value?
To
some
degree
we
equate
growth
with
the
hare
in
Aesop’s
tale,
and
value
with
the
tortoise.
The
hare
has
long
legs
and
can
run
really
fast
at
times.
Most
investors
get
excited
about
all
the
capital
appreciation
that
often
comes
with
investing
in
hare-type
stocks.
In
contrast,
tortoise-type
stocks
are
less
exciting,
and
much
of
their
return
is
often
generated
by
compounding
the
stream
of
dividend
income
they
pay
out.
During
periods
of
strong
market
returns,
such
as
over
the
last
couple
of
decades,
hare-type
stocks
have
typically
massively
outperformed
tortoises.
Beyond
globalisation
however,
hare-type
stocks
have
already
suffered
some
setbacks.
These
are
the
kinds
of
conditions
when
tortoise-type
stocks
outperform.
And
ultimately,
as
in
Aesop’s
tale,
the
tortoise
wins
the
race.
We
are
tremendously
upbeat
about
value
outperforming
growth,
next
year
and
indeed
for
many
years
beyond.
House
or
Pension?
Whilst
houses
have
done
well
for
years,
we
need
savers
to
step
up
their
willingness
to
invest
via
a
SIPP
or
equivalent.
After
years
of
an
absence
of
productivity,
and
the
cost
of
capital
rising,
especially
for
UK
quoted
smaller
companies,
it
is
now
very
hard
for
companies
to
justify
significant
capital
expenditure. Numerous
UK
quoted
companies
are
buying
back
their
equity,
in
preference
to
capital
expenditure.
All
of
us
need
to
step
up
our
willingness
to
invest
in
UK-quoted
smaller
companies,
which
will
help
reduce
their
cost
of
capital,
that
in
turn
will
then
boost
the
number
of
capital
expenditure
projects
that
are
viable.
SIPPs
are
a
golden
opportunity
for
us
all.
Crypto:
Brilliant
or
Bad?
At
this
stage
cypto
is
a
very
immature
area
of
the
capital
markets,
and
as
such
there
is
room
for
all
sorts
of
scandals
etc.
But
over
time,
as
the
sector
matures,
we
do
believe
there
will
be
features
of
crypto
that
do
deliver
improved
productivity,
that
ultimately
improves
the
efficiency
of
the
corporates.
In
short,
financial
markets
are
socially
useful,
because
when
they
work
well,
they
deliver
additional
skilled
employment,
productivity
improvement
and
when
local
businesses
succeed,
they
increase
the
UK
tax
take.
These
are
all
good
outcomes
for
the
electorate
as
a
whole,
not
just
those
with
savings.
We
should
welcome
innovations
like
crypto.
What
Can
be
Done
to
Improve
Diversity
in
Fund
Management?
Many
of
the
patterns
within
the
financial
markets
during
globalisation
favoured
largeness.
The
current
scale
of
the
largest
US
companies
is
a
good
illustration.
Whilst
there
will
always
be
room
for
bigness,
we
also
need
to
foster
smallness.
Smaller
companies
tend
to
be
more
innovative
and
typically
offer
greater
potential
for
junior
staff
to
develop
their
capabilities
and
responsibilities
relatively
rapidly.
We
need
a
sea
change
in
the
perception
of
risk,
to
embrace
more
smallness
in
the
financial
markets.
We
need
more
small
fund
management
companies
to
be
set
up.
If
this
occurs,
they
will
bring
increased
diversity
with
them,
including
increased
diversity
within
the
fund
management
community
itself.
Have
you
Ever
Engaged
With
a
Company
and
Been
Particularly
Proud
(or
Disappointed)
of
the
Outcome?
As
we
are
an
investor
that
is
willing
to
consider
the
risk/reward
of
any
UK-quoted
company
irrespective
of
market
capitalisation,
we
review
the
potential
for
all
those
that
are
often
perceived
as
too
microcap
for
most
other
professional
investors.
Some
of
these
may
have
outstanding
opportunities
to
thrive
and
create
additional
skilled
employment,
and
yet
sometimes
never
get
the
capital
to
put
their
plans
in
place.
Fortunately,
we
have
clients
that
are
able
to
invest
in
these,
and
in
some
cases
our
clients’
capital
gets
these
deals
over
the
line.
Whilst
we
may
have
only
been
a
part
of
the
capital
providers
at
the
end
of
a
long
process,
the
marginal
amount
of
capital
our
clients
provide
may
have
changed
the
outlook
for
the
company
and
their
staff
in
a
very
meaningful
way.
We
are
proud
that
these
kinds
of
outcomes
typically
happen
numerous
times
each
year,
especially
as
we
believe
they
also
help
our
funds
to
deliver
stronger
client
outcomes
than
those
of
some
competitor
funds
over
the
longer
term.
Some
recent
examples
include
Lifesafe,
Ensilica,
Zinc
Media,
Tribe
Technology
and
Cyanconnode.
What’s
the
Best
Advice
You’ve
Ever
Been
Given?
Early
in
my
investment
career,
an
experienced
colleague
took
me
aside
to
highlight
why
a
mismatch
in
the
terms
of
assets
and
liabilities
can
be
so
troublesome.
In
short,
if
a
bank
has
customer
deposits
that
can
be
withdrawn
at
any
time,
that
goes
on
to
make
loans
to
companies
that
are
generally
unable
to
be
called
back
for
a
fixed
period,
then
even
a
slight
change
in
perception
can
lead
to
disaster.
History
is
littered
with
examples
of
bank
runs,
including
quite
a
few
during
the
Global
Financial
Crisis
in
2008.
There
are
plenty
of
other
versions
of
this
mismatch.
If
a
company’s
losses
crystalise
into
a
loss
of
ready
cash,
within
a
capital
structure
where
the
breach
of
various
covenants
leads
to
the
corporate
loans
having
to
be
repaid,
then
what
appears
to
be
minor
change
in
trading
conditions
can
lead
to
a
going
concern
suddenly
becoming
insolvent.
Mr
McCawber,
from
the
book
David
Copperfield,
had
it
right.
This
is
the
interface
between
these
two
states,
it
is
the
difference
between
happiness
and
misery.
In
the
past
I
became
a
fully
qualified
Chartered
Engineer,
with
past
experience
in
docks,
harbours
and
coastal
protection.
I
guess
if
I
wasn’t
a
fund
manager
I
would
be
working
on
these
kinds
of
projects.
As
it
is,
there
are
several
large
jetties,
breakwaters
and
other
portside
facilities
that
I
was
involved
in
years
ago,
that
remain
in
use
even
now.
What
Would
You
be
if
You
Weren’t
a
Fund
Manager?
In
the
past
I
became
a
fully
qualified
Chartered
Engineer,
with
past
experience
in
docks,
harbours
and
coastal
protection.
I
guess
if
I
wasn’t
a
fund
manager
I
would
be
working
on
these
kinds
of
projects.
As
it
is,
there
are
several
large
jetties,
breakwaters
and
other
portside
facilities
that
I
was
involved
in
years
ago,
that
remain
in
use
even
now.
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