Small-cap diamond is off to a flyer

What fund manager wouldn’t want to be Peter Webb? He owns his own fund management company, Unicorn, and he runs an investment trust, Eaglet, which has an extraordinary performance record. And the lucky devil is the proud owner of a racehorse that also keeps romping home in the money.
Not that Webb, who is still only 43, puts a lot down to luck, even with the horses. He’s been managing money for 16 years in the smaller companies arena and attributes Eaglet’s figures to calling the right sectors at the right time of the cycle.
Eaglet is up 199% over five years and 82% over the past year alone. And considering the sector Webb’s in, the trust’s 17.4% fall over three years is entirely respectable.
Right now, he says, there are fewer sectors with strong prospects than at almost any time in his career. The consumer is as weighed down with debt as he possibly could be, while the Government’s public spending boom is the only thing masking the fact that, like the US, we are in the midst of a jobless recovery.
But this gloomy scenario hardly depresses Webb. He firmly believes that industrials and electricals remain wildly oversold, and that support services such as recruitment (in areas such as IT) remain a great opportunity.
He even talks about TMT with relish: “They were hopelessly overbought and then hopelessly oversold. Some of them are now at very attractive prices.”
He’s recently added to his holdings in Research Machines and Microgen. “Overall, they’re doing fine so far. But we’re building a position to make it work over five years or so. Typically, we own companies for five years and, if anything, that term is becoming longer.”
When talking about TMT, he extends it to include things such as electrical components distribution and IT support and recruitment. “These are deep cyclical businesses that have been so bad that some people think they only have bad times. But if you catch them right, you can enjoy the crest of a wave for some time.”
Webb talks a lot about rising interest rates, and what does well and what does not in such an environment. One thing is for sure: he doesn’t want to be anywhere near the consumer sectors as interest-rate rises bite: “There comes a point when there’s going to be payback time. You’ve got to avoid anything to do with consumers, who are more indebted on credit cards and property borrowing than ever. Lenders are being mad and consumers are being mad.”
Webb came out of Pendragon last year, fearing that the motor distribution market will become a lot softer this year. He also sold out of McBride, a household goods manufacturer, and Radstone Technology. Generally, he regards them all as fine businesses – it’s just that he has made his money and now sees better opportunities elsewhere. At Radstone, he started buying at 40p and sold out when it hit £3.
His switch into electricals, industrials and recruiters has been made largely by topping up existing holdings, such as Robert Walters, but he has also added some new stocks. He mentions both Hamilton Rentals and Compel, which do hardware and IT solutions, as examples.
His biggest holdings remains Harvey Nash (8.6%), Robert Walters (7.9%), Trifast (6.1%), Volex (5.9%) and Mears (5.9%). Volex produces interconnectors and power cords for electrical products, and enjoyed a terrific run towards the end of last year. It has been a similar story for Trifast, a maker of industrial fasteners.
Webb makes it his business to go out and meet industrial producers – something most fund managers in Britain won’t do unless they are hanging around Shenzhen. And with a £150m fund and the likelihood of a five-year holding, industrialists hold him in high regard.
It helps that, rather like the businesses he invests in, Webb is something of a rough diamond. His father worked for a bookie and as a window cleaner, and today the fund manager lives in Essex with his wife and three children. As the boss of Unicorn, he is unhampered by the sort of corporate doublespeak that sometimes prevents fund managers elsewhere really speaking their mind.
He set up Unicorn in 2000 after a fund management career that began at Thornton in 1987. In 1992 he met Peter Underhill of Capital Industries and together they created Capital Web Asset Management.
Today Unicorn has about £350m under management spread around eight funds, although Eaglet remains very much its flagship. It is 70% owned by its executive management team, and last October there was much talk that Webb was planning an Aim flotation for the group, timed for early this year. The idea was that a market float would help incentivise the team of fund managers with share options, as well as giving some of the early backers a cash exit.
But that’s now very much on the back burner: “We were looking at a flotation, but it was interesting to see the response from people in business and the City that we really respect. Most said ‘fine’, but some didn’t think it was such a great idea. There’s a mystique about Unicorn; it’s fast growing and I believe has got a lot further to grow yet.”
But surely if the likes of New Star’s John Duffield came along waving a large wedge of cash plus huge marketing support, Webb would interested in a deal?
He says not. “It’s my lifetime’s work and I love doing this job. What would I do with the money anyway? I don’t want for much. I really do believe we are at the beginning of a great opportunity with Unicorn. I don’t see any other businesses on the stockmarket that I think have such good prospects.”
Webb, who in his 30s was happy to tell others that he planned to be a millionaire before he hit 40, is a man with striking ambition. And that’s the name of his horse: Striking Ambition: “If you are fortunate enough to run a business, you need a hobby as well. Some people do golf; I do the horses, and I’ve been fortunate enough to make a return on it as well. Striking Ambition is a three-year-old, he’s come on very well over winter and could do really well this year.” And that’s just the horse.