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Hargreave Hale's unloved small-cap income picks

Hallett, a former Wealth Manager cover star, looks for stocks that have low volatility to AIM market risk, which are also unfashionable.

Hargreave Hale's unloved small-cap income picks
Hargreave Hale’s Richard Hallett, manager of Stellar Asset Management’s AIM Inheritance Preservation Service, believes secular rather than cyclical growth will be key to generating returns in tricky markets. 

Hallett, a former Wealth Manager cover star, looks for stocks that have low volatility to AIM market risk, which are also unfashionable.

He says secular growth will not be offset by an economic downturn and therefore looks for businesses that are naturally defensive – for example, pawnbrokers, basic food producers or gambling companies.

He looks for companies that have displayed an ability to grow through difficult periods, such as 2000-02 and 2007–09

Opposite are three companies he believes are doing something special, which enables them to take market share from weaker rivals in difficult times. They do this by having a better product, better balance sheet, better management or all three.

Hallett says: ‘Every chief executive will say they have a superior business model. However, only a few continue to raise expectations through an economic downturn. Therefore, look at their track record.’

Hallett began working on the AIM market shortly after its launch in 1995, developing Singer & Friedlander’s sector specialism and running £25 million in institutional small cap money before joining Hargreave Hale in 2005.

In addition to Stellar Asset Management’s IHT service, he works alongside Citywire A-rated Giles Hargreave on the Marlborough Special Situations, UK Leading Companies and UK Micro Cap Growth unit trusts.

Over the five years to April 2011, the Hargreave Hale AIM IHT portfolio returned 42% versus the FTSE AIM All-Share loss of more than 20%.

The service typically invests in businesses with a £100 million plus capitalisation and a relatively mature dividend stream.

ASOS

The online fashion retailer has been in Hallett’s portfolio since 2003, and has benefited from the comparative weakness of sterling.

It generates 50% of its turnover from overseas markets, including rapidly growing Asian economies, and expects this to continue to rise significantly.

James Halstead

This international group includes companies that manufacture commercial, contract and consumer flooring, such as Polyflor.

Hallett likes the group because it has a proven ability to grow in tough market conditions and has proved it can be a global contender.

Nichols Plc

A soft drinks business with a brand portfolio that includes Vimto, Sunkist and Panda. The group has a leading position in the stills and carbonated drinks categories and sells to more than 65 countries.

Hallett like this company because it is expanding rapidly from the North of England, successfully taking market share. It also has very profitable overseas operations in the Middle East and in particular a growing franchise in India.

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Related Fund Managers

Richard Hallett
Richard Hallett Average Total Return:
37.86%
12/165 in Equity - UK (All Companies) (Performance over 3 years)
Giles Hargreave
Giles Hargreave Average Total Return:
48.03%
17/54 in Equity - UK Smaller Companies (Performance over 3 years)
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