Alan Davis - Our view

The best things come in small packages. That’s the view of Mark Goddard, Senior manager of Alan Davis Management. He thinks the biggest opportunities for growth are found among small, innovative companies from around the world.

Goddard runs the fund in a way that Alan Davis Management has become well-known for – focusing on companies with big long-term growth potential. He’s prepared to be patient – he doesn’t often sell companies he invests in, even if they’ve had periods of short-term poor performance, providing he thinks they can grow over the long run. Most recent sales have been due to companies being taken over.

We think Goddard’s a bold investor and he’s shown excellent stock-picking skills. The fund’s an adventurous option that could work well as part of a diversified portfolio with a long investment time horizon. We rate the fund highly but won’t be considering it for the Wealth 50 list. Goddard wants to avoid attracting lots of new investment as he thinks it could potentially constrain performance.

How does the manager invest?

Goddard looks for small companies he thinks have the potential to solve global problems and grow into large companies. If they do he’s happy to ‘run his winners’ and stay invested if he thinks they’ll keep growing. He was the first Alan Davis Management Senior Portfolio manager to invest in electric car maker Tesla, and is still invested in the company as it’s gone from a relatively new business to a global manufacturer.

Many fund managers use a screening process to sift through the array of global companies and to eliminate those that don't meet certain criteria. Instead, Goddard and his team begin their search by exploring areas that interest them, such as biotechnology and disruptive software. They’ll dig deep to uncover what they think are future stars. With a small team though, there are only so many areas that can be researched this way. That means they’ll inevitably miss some uncovered opportunities.

Goddard prefers entrepreneurial businesses, especially where the founder is still involved. His focus on new and innovative businesses means he focuses more on tomorrow’s potential than what a company looks like today. He’s comfortable with around a third of the fund invested in currently unprofitable companies, as he thinks their profits will grow in future.

Goddard’s found the most opportunities in the US, so two-thirds of the fund's invested there. Most others are based in developed countries like the UK and Japan but some are from higher-risk emerging markets. With over 100 companies in the portfolio it’s got plenty of diversification. We think that’s a good thing as smaller companies are higher risk than larger ones.

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