News & Press

03 May 2011 Written by: Maike Currie of Investor Chronicle

t1ps of the year

Writing share tips is one thing. Putting other people's money into your investment ideas is something completely different. In the 1990s, Tom Winnifrith was busy tipping shares in the Investors Chronicle; today, he is running two of the best-performing open-ended funds in the UK.

Mr Winnifrith is part of the team at specialist Isle of Man-based smaller company fund managers, T1ps Investment Management (TIM). The company was born from an investment advice website, t1ps.com, set up by Mr Winnifrith, which focused on smaller caps and share tips. TIM today manages a range of funds, including three Enterprise Investment Scheme (EIS) funds, but it is the SF t1ps Smaller Companies Growth Fund and the SF t1ps Smaller Companies Gold Fund that have caught investors' attention.

The growth fund, launched in November 2007, has over the past year posted a cumulative performance well in excess of 40 per cent, outperforming the IMA UK Smaller Companies sector by almost 20 per cent. Meanwhile, the gold fund (launched in July 2009) is the number one open-ended fund over the past year having posted a return of 76 per cent, according to data from Trustnet. Both funds are among the top 20 best performing funds in a universe of more than 2,300.

Mr Winnifrith already had a following as a share tipster before deciding to set up the smaller company growth fund in 2007. "Frankly, my years of City experience is that most fund managers are actually mediocre, anyway. They are running quasi trackers and charging active management fees for it. We were of the view that we could do better," he says.

Neither he nor any of the TIM team at that stage had any experience of fund management, but Mr Winnifrith certainly does not lack self-confidence. He launched both funds without any institutional money - all the initial investment came from subscribers to the t1ps.com newsletters.

Mr Winnifrith attributes the two funds' performance to a bottom-up stock selection process, saying that he and his team spend little time considering macro economics and sector weightings. The funds' relatively small size helps, but even then, finding winners is not easy. "Within the stock selection world you very rarely find companies which are outstanding value and where you can make a very large investment confident that it will deliver absolutely stunning returns," he says. "You must accept that you will in any portfolio have two or three such megastars and then if you can have 20, 30 or 40 other stocks where you are confident of making a reasonable return - that is what you must hope for. Never shoot for the stars because it does not work."

He also cites the collegiate approach adopted by the TIM team, a mixture of number crunchers and old hands who manage the funds together. He adds that it is a blessing that none of his teams are based not in the City, but in Douglas, the Isle of Man's capital. "It means we are not pestered by brokers and IPOs. We generate our own ideas."

Good timing has also played a part. "Obviously, luck plays a part in everything," Mr Winnifrith concedes, but adds: "In our defence, and to illustrate that the outperformance is not a fluke - when the growth fund was launched we stayed overwhelmingly in cash for the first eight months (this was pre-Lehmans when the stock market was going up). There were stocks we wished to own, but we did not see any compelling valuations." Investors weren't happy, but as Mr Winnifrith says: "We would rather be fired than forced to overpay." After the Lehmans collapse, the market plunged and with attractive valuations opening up, Mr Winnifrith and his team started buying aggressively.

While the autumn of 2008 presented a unique buying opportunity, TIM's core investment strategy is to make 30 to 40 investments per fund and hold on. "We take a very long term approach - we are not expecting things to double over night. Our intention is to hold things forever really," says Mr Winnifrith. "Occasionally, we accept that our analysis has been wrong and we will lose a position - and even the greatest stock can become overvalued. However, most of the stocks which are in the growth fund have been there for a long time - my hope is that when we have been going for 10 years, around 75 per cent of the stock that will be in the portfolio then will be there today."

Mr Winnifrith says now is a great time to be investing in small caps given that banks are not lending - he and his team have the opportunity to invest in small companies and help transform their businesses. But, while he is seeing "tremendous value in selected opportunities" in both small companies and gold equities, he remains extremely bearish on the UK market and economy generalkly. "Britain in our view is in terminal decline, which means that the stock market as a whole isn't going to go anywhere fast." How does he square that pessimism with his bottom-up approach to fund management? "The stock market is not an animal in itself, it is merely a collection of individual stocks - and within that there are some of outstanding value. So it is perfectly possible that if you pick the right stocks you can make quite a lot of money."

Investor Chronicle article