Nimmo was born in 1957. He studied geography at the University of Dundee and briefly worked as a geologist in the Middle East before returning to Edinburgh to do an MBA. In 1985, he joined Standard Life as an investment analyst. In 1997, he launched Standard Life’s UK Smaller Companies Fund, and in 2003 was put in charge of the UK Smaller Companies Trust, both of which he continues to run.
What was his strategy?
Nimmo’s funds focus on smaller companies. As well as his own judgement, he heavily relies on a quantitative tool called “the Matrix”. This ranks companies in terms of earnings consistency, value, growth of profits and price momentum. Nimmo likes to own shares that have performed well, rather than looking for cheaper companies. As a result, his holdings tend to be priced more expensively (relative to earnings) than the wider market.
Did this work?
Nimmo’s two main funds have beaten the UK market by a wide margin. The Standard Life UK Smaller Companies Trust has returned 908% since launch, compared with only 194% for the FTSE 100. This works out at a performance of 18.7% a year. Meanwhile, £1,000 invested in the Standard Life UK Smaller Companies Fund at its launch in 1997 would be worth £12,087 now (14% a year), compared with £2,605 for £1,000 for a fund that simply tracked the FTSE 100 (5.2%).
What were his biggest successes?
Like several other successful small-cap investors, Nimmo made a lot of money from online retailer Asos, which he bought in January 2006. He was impressed by the level of customer loyalty inspired by the brand, as well as the firm’s long-term outlook and its plans to expand beyond the UK. Nimmo bought in at an average of 85p a share, and sold eight years later at an average price of around £47 – equivalent to an annual price return of 65%.
What lessons are there for investors?
Nimmo’s success shows that intelligent small-cap investing can be lucrative – and numerous academic studies suggest that, over the long run, smaller companies tend to deliver higher returns than larger ones. While many investors consider qualitative (subjective measures such as management quality) and quantitative analysis (focusing on the numbers) to be mutually exclusive approaches, his decision to use both methods to help him select winners has worked well.