Fund of the week: The five signs of a stellar stock

Richard Plackett, manager of the Merrill Lynch UK Smaller Companies fund (and a former British international at bridge) has returned 42.5% in the year to September.

Emily Hohler
By
published

Richard Plackett's view that bridge, with its emphasis on psychology and intuition, "occupies the same mental space as fund management", might alarm those who already think institutional investment is a game played with other people's money. But at least in Plackett's case the game has been profitable. The manager of the Merrill Lynch UK Smaller Companies fund (and a former British international at bridge) has returned 42.5% in the year to September, compared to the 26% growth of the FTSE index of smaller firms, says Martin Baker in The Daily Telegraph.

The fund holds around 100 stocks in firms with market caps of under £1bn and, while stocks tend to be held for some years, no one stock is ever allowed to grow to more than 2% of the total assets. The selection process is rigorous, as it has to be in this volatile part of the market. His team look at some 700 firms and pick the ones that, in their view, will grow fast. Plackett thinks the best performers share five characteristics: top-quality management, a strong market position that creates barriers to entry, cash generation, a good track record (specifically good earnings-growth momentum), and a strong balance sheet (ie, a net cash balance).

In spite of this, Plackett doesn't expect to get more than about 70% of his stock picks right, he tells the FT. But one recent investment he is confident about is White Young Green, an engineering consultancy. "It has a strong order book, sells across a wide range and is trading extremely well." He is also keen on RWS Holdings, a support services firm that is well on the road to hitting profit targets and has £12m of cash on its books.

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Merrill Lynch UK Smaller Companies fund

Name of holding % of assets

Numis 2.0%

ITE Group 1.9%

Xaar 1.9%

Spirax-Sarco 1.9%

Incisive Media 1.9%

Synergy Healthcare 1.8%

Enterprise 1.8%

Domino Printing Sciences 1.8%

Aveva Group 1.8%

Mouchel Parkman 1.7%

Emily Hohler
Emily Hohler

Emily has extensive experience in the world of journalism. She has worked on MoneyWeek for more than 20 years as a former assistant editor and writer. Emily has previously worked on titles including The Times as a Deputy Features Editor, Commissioning Editor at The Independent Sunday Review, The Daily Telegraph, and she spent three years at women's lifestyle magazine Marie Claire as a features writer for three years, early on in her career. 

On MoneyWeek, Emily’s coverage includes Brexit and global markets such as Russia and China. Aside from her writing, Emily is a Nutritional Therapist and she runs her own business called Root Branch Nutrition in Oxfordshire, where she offers consultations and workshops on nutrition and health.

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