Gervais Williams: Top stock and themes for 2018

We asked top small-cap fund manager, Miton's Gervais Williams, if he could only buy shares in one company, what would it be? Here's his answer.

What is your view on financial markets currently, specifically AIM stocks as we prepare for Brexit?

I think the AIM market itself is very well positioned to provide an opportunity to widen the opportunity set. When people invest, often they've been historically invested in indices and ETFs and these are dominated by the largest companies. The whole opportunity of the AIM market is it's outside indices, and many of the companies are in different sectors, different opportunities, and thereby give an opportunity to diversify holdings, and I think that's very attractive for investors.

What will be the key themes for small-cap investors in 2018?

One of the key issues I think is that perhaps world growth has been pretty good this year [2017], I think it could peak out a little bit next year. UK economy has been slowing, particularly in the consumer area, so I think it's going to be identifying individual companies which are able to continue to grow sales, even at a time perhaps when economic conditions are not as good.

Now one of the great advantages, particularly of smaller microcap companies, is that many times their opportunities are more independent of the economy at large, and they can hopefully in some cases grow their sales even when the economy itself isn't growing.

It's hard finding good companies at a fair price currently. Will it get easier in 2018?

I think what's actually happened is the market has become very dazzled by some of the performances of strong growth companies over this last 12 months in particular. And I think in my cases people are overlooking some of the smaller companies, particularly more the steady companies growing at sort of 5/10/15% per year. And many of those actually aren't on very high valuations at the moment, particularly many of the microcaps where perhaps the companies are so small that many of the professional investors don't look at them.

So, I think there's good opportunities right now, even in that area and I don't think it will be easy in 2018, but I think there'll be further opportunities in 2018 as well.

If you could only buy shares in one company, what would it be?

We tend to invest across a portfolio, in that regard we don't give personal advice on individual companies. But one of the companies that we're quite upbeat about at the moment is a company called Zotefoams, it's involved in foam manufacture both in the UK and in the US. Alongside that, for many years, it's been incubating a new business alongside it called MuCell, which is now reaching maturity and will actually add to the profits growth in the future. A combined business we think could actually be quite exciting over the coming years.

What's top of your Christmas list this year?

I think what I'd love to see going forward, is perhaps a good settlement with Brexit, so that we've got the certainty going forward, give us the opportunity for businesses to get back to investing and growing businesses. And most particularly, longer term, I'd love to see perhaps a move back towards more manufacturing in the UK, and that would actually rebalance the economy away from just being so reliant on the consumer and the service sectors.

This is the transcript of a video filmed in December. To watch the original video, please click here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment.