A 9-minute watch.

Ken Wotton is managing director of quoted investments at Gresham House, and sat down in the booth with Gary Shepherd to chat through the liquidity profile of the smaller end of the market, dealing with its inherent volatility, and M&A in 2019.

Illiquidity is the inevitable concern when it comes to investing in small and micro-caps. Ken begins: “This is part of the skill of the manager, knowing the liquidity profile of the stocks; how they are traded; how it effects returns; how it effects redemptions”. He adds that as such, micro-cap managers need a clear idea of the capacity constraints of their strategies.

On M&A he believes he has seen a clear pick-up in activity over the year, and explains the key reasons why he thinks this is.

Asked whether he is positioned for take-outs, he explains that the team’s valuation discipline means they are looking to invest in strategically valuable assets, so “if the market isn’t appreciating them, PE probably will”.

He ends by discussing the volatility in small-caps, and how he uses this to his advantage.

For more from Ken, here he speaks on avoiding value traps in small-caps, as well as his quick-fire 3 Questions.