12th Oct 2022
Paul Marriage reflects on 5 years of Tellworth Investments, and the trials and tribulations of UK small cap investing in this month’s Insight.
Tellworth turned 5 last month, so I thought it might be a good time to reflect on our journey from maternity ward to reception class. In a nod to the geography of our move and the fact we were only continuing to manage long/short money, John hired an S-class Uber (remember them?) for the exit from Gresham St. Walking out through the ‘big office’ turnstiles I recall thinking that a cloak of corporate protection had been removed from me, possibly forever. The gestation period had all been legals, PR and generally trying to keep the plan on track, but when we left, it felt real and quite scary for the first time. No longer could I disappear into the bowels of a big and successful fund management house and find myself a useful role into retirement if / when I was finally found out as incompetent in the day job – an inevitability at some stage.
In our 60 months to date, we think that UK small cap, our founding DNA for want of anything more sophisticated, has been in favour for about 8 months from November 2020 to May 2021. Euphemisms such as unhelpful background and geo-political headwinds abound but the reality of small-cap investing is that it is really not that easy even when the going is good, that’s why we exist. On our very first day, we found out that our operating system could not cope with the fact that we didn’t complete every ticket in full every day. Oh, the unimaginable joys of being able to actually do what you want when you want in a small-cap portfolio. The return to the West End for me was nostalgic, having worked at T.M. Lewin’s shirt shop on the ground floor of Eagle House and Clerical Medical on St James’s Square in the late 1990s. The former is now online-only, and the shirts have long since stopped being made in Southend, while the latter morphed into Insight and their splendid townhouse office was converted into a private home – whose owner is probably no longer allowed to enter the country.
The interminable Brexit negotiations dominated much of the sentiment towards UK equities in the late teens. One of the little reported common themes was that PLCs worked it out quickly and didn’t moan about it much at all – but that didn’t stop the UK being seen as a go-from asset class. The outlook did seem to improve markedly after the final deal was done and a new government with a big majority was elected at the end of 2019. We really enjoyed the next 27 days or so until someone flew back from a ski holiday in Italy feeling more peeky than one might have expected after a week of chianti, pasta, meat, cheese and solar radiation. The panic sell in mid-March was novel in that the small-cap market did briefly fail in a way it did not in 2008, but a couple of months later equity bases were being rebuilt with 10% placings spreading like their own pandemic. We were not natural home workers, though the technology surprisingly worked.
I did finally feel guilty about the number of times the BennBridge COO had harassed me fruitlessly about trying systems out from home for a day in 2018 just in case. Like most people, I thought WFH was for serial shirkers. On returning to the office that summer the serenity was blissful but witnessing the economic and social damage of restrictions was unstintingly depressing. Among genuine key workers, I was happy with the assumption of train staff that I was probably up to important secret squirrel stuff on my daily slog to SW1.
With fixed balance sheets and depressed share prices surely this was a fabulous opportunity in UK equities and who better than the crack team at Tellworth to execute on it? The narrative was sound, the timing was immaculate, the board experienced and the Ads in the Spectator looked sleek – but the Tellworth British Recovery and Growth Trust Plc never made it off the slipway. In post-match parlance, we were not robbed, but gutted and the positives we took were that at least we had highlighted an opportunity to make money in UK equities that our extant funds duly took. This was that golden era, if 190 days can be classified as such, of stocks going up, IPOs going to big premiums and earnings being consistently beaten. Soggy, greasy, luke-warm, over-salted, undercooked chips are bad; but as we found out in early summer last year no chips are a Toto Nsiala (the former Ipswich Town centre back fondly and unfairly known as ‘total disaster’). No semis would leave the UK housing stock bereft, but it was the lack of these silicon components that triggered the supply chain crunch last summer. We had a brief interlude, maybe 20 days, before Russia invaded Ukraine when we thought maybe things were transitory and perhaps companies were managing OK. Now even my young adult children talk about being conscripted in a land war, unlikely given if it gets that bad it will be short and hot, but that is how much perceptions have changed.
Do I sometimes think why on earth did we do this? Yes, of course, but only ever fleetingly on a particularly grey Monday. Against the odds, we have ended up with a surprisingly diverse £1bn AUM business (there is no longer any point in using US$ for bigging up reasons). Our long-short strategies have consistently made people money, our long-only funds have shared the same stretcher-bearers as everyone else but have never been far from the front line. We have built a unique data set on the UK economy and a bunch of clever people who largely seem to enjoy turning up and trying harder most days. It’s de rigueur at this stage to make some grumpy comments about being on the cusp of a global recession; bring it on frankly. While I will never forget that CIO explaining the last in, first out accounting principle when he sacked me back in 1997, maybe this time it will be FIFO for the UK – the first bit feels priced in at the very least.
While I’m not sure we have won anything much in the last 5 years, like any acceptance speech I must thank all of you who have bravely entrusted your own and your clients’ assets with us. For us, every £ counts.
The views and opinions contained herein are those of Paul Marriage. They do not necessarily represent views expressed or reflected in other BennBridge investment communications or strategies and are subject to change.
Past performance is not indicative of future results.
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Tellworth is a UK and European equity investment management boutique which launched in partnership with BennBridge Ltd.
BennBridge is authorised and regulated by the UK Financial Conduct Authority (FRN: 769109) with registered address: C/O Windsor House 5 Station Court, Station Road, Great Shelford, Cambridge, England, CB22 5NE.