Staying active

The Peel Hunt conference is a great opportunity to garner the latest insights from the front lines of our turbulent – but opportunity-rich – markets. With volatility testing investor nerves and the temptation of passive investing ever-present, there’s no substitute for human judgement and active engagement. In the Aberdeen small cap team, we regularly see our investee companies, but a conference setting offers something more. It’s a great chance to meet other investors and exchange ideas, talk with strategists and hear keynote speakers. This year’s speakers didn’t disappoint, led by Emma Reynolds, Economic Secretary to the Treasury, and Kemi Badenoch, Leader of the Conservative Party. 

I particularly enjoy ‘reading the room,’ and after two days of rich dialogue, there was plenty to reflect on. These conversations help us contextualise our investment decisions and enhance our Quality, Growth, and Momentum investment process.

As markets feel like they are moving faster than ever, stepping away from the computer screens and staying close to company management has never been more important. Our relationship with management teams is vital and you learn something from every interaction.

Remaining agile, informed, and active is important for managing smaller company portfolios – and getting a ‘fresh’ update outside reporting season is valuable.

One of the most interesting takeaways was the notable presence of European fund managers, many of whom view the UK as an increasingly attractive investment destination. Of course, I couldn’t resist extoling the virtues of the quality names we hold in our portfolio to European ears. But the attendance of foreign investors is important. It’s a good sign that they, like us, see the attractions of investing in UK small-cap markets.

Unlocking the UK’s potential

Feedback from the keynote speakers was that unlocking the UK’s potential will take fresh thinking, greater risk appetite, and a more active embrace of home-grown investment opportunities.

Peel Hunt’s excellent economist, Kallum Pickering, brought a welcome dose of optimism as he discussed the 21st century’s demographic and technological dilemmas. As the UK median age creeps ever higher, he warns of tough policy trade-offs – balancing pensions and healthcare demands with growth imperatives.

But Kallum finds hope in our ongoing technological revolution, as advances in artificial intelligence (AI), robotics, and healthcare offset the economic aches of an ageing society. With any luck, people will manage to “work smarter for longer”. For all the headlines about decline, history rewards the adaptable, and the intersection of demography and innovation offers an opportunity for reinvention.

AI – pigs are flying

AI is always at the forefront of our minds, and it came up in all conversations. The most unusual adaptation was from Cranswick, a leading UK food producer, who told of the advantages of AI to monitor animal welfare. AI is our age’s own 'discovery of fire', and management teams are learning to use it optimally. A chat with Peel Hunt’s Tech analyst, Damindu Jayaweera, reminded me that great technologies are underhyped in their day and that transformative second-order effects cannot be properly reflected in contemporary forecasting.

Today, AI is spreading with unprecedented speed, unlocking new knowledge and areas to enhance competitiveness. The opportunity for investors does not reside solely in the global titans, but also in the ‘picks and shovels’ of local infrastructure, in vertical specialists with deep domain expertise, and in innovative fintech – the real-world veins through which this revolution will flow. As stock pickers, this is attractive for us and meeting many companies helps us identify the winners and losers.

Runway takeaways

As I got on the plane back to Edinburgh, I thought about the past couple of days and was reminded that, despite capital outflows and market contraction, the UK remains rich with opportunity. Conferences like this allow us to gauge investor sentiment and identify which companies are generating the most interest. I had many productive meetings, but if I had to choose a standout, it would be Cranswick, and not just because I learned that ‘Pigs in Duvets’ will be on our shelves this Christmas!

Cranswick excels at investing in high-return projects that deepen customer relationships and enhance vertical integration. Its highly invested, vertically integrated supply chain is a true source of competitive advantage versus its close peers. Last year was a busy period – and this year will be no different. The projected pace of investment over the medium term will materially increase capacity, expand capabilities, and enhance efficiency. As such, we think Cranswick will be able to continue generating strong returns over the medium term.

Final thoughts…

Markets – and the world – are dynamic and changing. Our stock screening tool, the Matrix, identifies opportunities for the current environment. While the tool helps us screen for ideas and assist with portfolio construction, company management meetings add real value. As investors, we remain curious, open-minded, and always on the lookout for the next opportunity.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.