Nimmo returns to top of funds form

Clark's move to the top, when performances for the three years to August 31 were calculated, had ended the record-breaking, 10-month reign of Nimmo. This run is by far the longest since The Herald began publishing the Scottish top flight in summer 2003. It is way ahead of the next best, a five-month run achieved in early 2004 by Hugh Young, the Aberdeen Asset Management emerging markets specialist.

Nimmo regained top spot with a jump in his UK-wide ranking from fifth to third, when performances to October 31 were calculated. Clark stood still in fourth position UK-wide.

Audrey Ryan, who runs Aegon's Ethical Cautious Managed, Ethical Equity, and UK Opportunities funds, is third in the Scottish top flight but, in terms of a UK-wide ranking which improved slightly from 25th to 23rd during October, she remains significantly adrift of Nimmo and Clark.

Told by The Herald last week that he had regained first place, Nimmo replied: "Brilliant. I am very pleased."

Nimmo highlighted how his fund had benefited since September 30 from its holdings in companies with "online business models".

He cited online fashion retailer Asos, which he noted was an acronym for "as seen on screen". Shares in Asos were by early last week up 44% on their end-September level.

Nimmo also flagged up Tradus, formerly QXL Ricardo, which he described as the "eBay of Poland, of Eastern Europe".

"As well as trading very well, it has been subject to a bid approach," he added, noting shares in Tradus were by early last week up 63% on their September 30 level.

Nimmo highlighted tough times facing fund managers in recent weeks.

He said: "As you know, it has been pretty damn difficult in the last three or four weeks. Really, since the beginning of November, the mood of pessimism is all-pervading. I think there is this assumption almost that the US is going to slow down quite dramatically in 2008 and the housing market in the US and credit crunch and all that is going to have flow-through in the financial sector.

"It is really quite nasty. Small-cap markets are probably down about 12%, 13% since the start of November. That is quite a severe fall. It is all, I think, emanating from worries about the US economy and whether it will feed through to the UK.

"It has kind of broadened out from the interest-rate-sensitive sectors into software and capital goods as well. There have been pockets of strength. Certainly oil and gas has been strong and also ... some stocks with online business models."

Nimmo also pointed to strength in defensive stocks which are less exposed to the economic cycle, such as food manufacturers.

Among other stocks which have done well recently for SLI's UK Smaller Companies fund, Nimmo cited oil service companies Wellstream and Expro International.

He also highlighted strength in Paypoint, which has yellow terminals in convenience stores which allow people to pay gas and electricity bills, top up their mobile phones, and pay their television licence fees, among other things.

Nimmo said: "It is a company run by an ex-commander of a submarine (Dominic Taylor), which you don't often get in the business world. I see him as a safe pair of hands to guide this company on."

Nimmo also cited a good performance by shares of Intermediate Capital Group, a provider of mezzanine finance in the "high interest-rate" sector.

"This credit crunch is playing into their hands," he added.

He cited Chemring as another of his fund's soundly-performing investments. Chemring develops decoys to help warplanes avoid incoming missiles, and Nimmo noted its wares had been used in Iraq.

Another holding highlighted by Nimmo was Connaught, which undertakes refurbishment of council houses and recently expanded into the health and safety compliance sector through the £91m acquisition of National Britannia.

However, Nimmo conceded that some of his UK Smaller Companies fund's more cyclical holdings, such as software companies, had been "hit quite hard" by stock market conditions.

He added: "We have suffered, with everybody else, in very weak markets."

Nimmo also noted his fund's significant holdings in restaurant companies had not performed so well in recent market conditions even though these businesses were trading well.

He said: "Some of the things that have held us back - some of these restaurant companies we have big holdings in have been relatively weak performers. They are still trading very well, things like Restaurant Group, Domino's Pizza, Carluccio's. They certainly haven't helped performance recently."

In spite of the current stock market gloom which he highlighted, Nimmo was relatively upbeat about the prospects for smaller company stocks.

He said: "Historically, on a seasonal basis, the end of November is absolutely the most pessimistic time. End of November, beginning of December, pessimism is rife year after year. Optimism tends to creep in, in the first quarter."

Nimmo added: "It might look pretty bad at the moment. It might be a reasonable time to commit money to smaller companies, particularly if you have a longer-term view."

The 10 largest holdings of Nimmo's fund, in size order, are Irish bookmaker Paddy Power, software company Aveva, uninterruptible power supply system developer Chloride, Tradus, artificial hip replacement pioneer Corin Group, Connaught, Expro International, Domino's Pizza, Autonomy, and pig and bull semen company Genus.

The Citywire survey focuses on open-ended funds aimed at retail investors. It does not cover managers of investment trusts or funds for which the minimum initial investment is more than £10,000. Rankings are based on three-year, risk-adjusted performance against relevant benchmarks.

Fewer than one-fifth of fund managers in the UK qualify for one of the 210 Citywire ratings.

UK-wide, Nimmo finds himself behind only Georgina Brittain and Mark Davids, managers of JP Morgan Asset Management's UK Smaller Companies fund.