The importance of outstanding customer service

Gervais Williams and Martin Turner

Miton UK MicroCap Trust plc
The managers of the Miton UK Microcap Trust plc (“MINI”) highlight a key non-financial consideration that they use when identifying investments for the portfolio.

 

Why we believe outstanding customer service is a vital aspect of investment selection

This update should not be taken as advice. If you are unsure about any of the content, please contact your financial adviser. Please remember that the value of stock market investments will fluctuate and investors may not get back the original amount invested.

During globalisation – which saw the increasing integration of economies around the world – global economic growth was reasonably strong, corporate profitability was relatively consistent and as a result, businesses succeeded. We are seeing this background reflected in the presentations used by company management in meetings with shareholders, which tend to focus on their current trading conditions and the strength of their balance sheets. In our view, it is interesting that some of the more intangible aspects of the business are rarely detailed, perhaps because management teams rarely get questions on some of the more nuanced aspects of running a business.

Unfortunately, with both inflation and interest rates now rising, future trading conditions are likely to become more testing. When choosing investments for Miton UK MicroCap Trust’s investment portfolio, meeting company management is fundamental to the selection process, as it provides us with the opportunity to question a company’s strategy, understand the particular challenges and opportunities of the markets in which it is operating, and examine its financial position. However, our meetings typically extend well beyond this. Access to a company’s management offers a vital opportunity to comprehend their underlying motivation, and the risks that they may need to take in order to succeed.

Outstanding customer service

In our view, those organisations that have high customer service ambitions embedded in their DNA should have a greater chance of maintaining profit margins as economic conditions start to get tougher. Yet since most management teams claim they place a high priority on customer service if asked, how can we really gauge those with a genuine motivation versus others that are less assiduous?

A good question in our view, is to ask the leadership teams what percentage of their boardroom reports focus on customer service data. Generalised answers lead on to additional questions: What percentage of deliveries/service calls were addressed in full and on time last month, how does the data compare with the same month last year, and how much does the data vary across different divisions of the business? Quite quickly, executive management teams that aren’t wholly knowledgeable about their customer service data come unstuck.

If leadership teams genuinely live and breathe a desire to deliver outstanding customer service, then they really need to care about how they help their front-line staff to succeed. So we follow up with questions identifying whether the business has recently carried out a staff survey – a ‘pulse’ survey about how many staff are happy to return to the office isn’t sufficient. We take particular note of staff Net Promotor Scores for example, which measure the degree to which individual employees would recommend to their friends that they should consider joining a business.

In short, we believe that questions over areas of nuance like this help us to identify which businesses are genuinely well placed to maintain their profit margins and generate surplus cash even during an economic downturn. Although a level of customer service doesn’t automatically imply a business can withstand pressure on its profit margin, it can put it in a better position than one that is less diligent in this respect. Surprisingly often, our questions highlight that the senior management teams operate in a bubble remote from their businesses. Since customer service and profit margins are so closely related in our view, we believe that many businesses that do not pay close attention to how they handle their customers may turn out to be more vulnerable than they expect during an economic downturn. Holdings in companies such as these are largely excluded from the Miton UK Microcap Trust’s portfolio by our investment selection process as a result.

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Risks

All types of investment carry a degree of risk.  It is possible you could lose some, or all, of the money you invest. The level of risk varies depending on the type of investment.

Typically, you are less likely to lose money over the long term from an investment that is considered low risk, although potential returns may also be lower. Investments considered higher risk typically offer greater opportunities for better long-term returns, though the risk of losing money is also likely to be higher.

When you invest, it is important that you understand the risk to your money and are comfortable with that level of risk. If you are unsure, we would recommend that you consult a financial adviser. .

The value of your investment might not keep up with any rise in the cost of living.

You could lose money if financial markets fall.

IMPORTANT INFORMATION:

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the content contained within/suitability of the funds mentioned, please speak to a financial adviser.

Whilst every effort has been made to ensure the accuracy of the information contained within this document, we regret that we cannot accept responsibility for any omissions or errors. The information given and opinions expressed are subject to change and should not be interpreted as investment advice. Reference to any particular stock or fund does not constitute a recommendation to buy or sell the stock or fund.  Persons who do not have professional experience in matters relating to investments should not rely on the content of this document.

All data is sourced to Premier Miton unless otherwise stated.

For your protection, calls may be monitored and recorded for training and quality assurance purposes.

A free, English language copy of the trust’s full Prospectus, the Key Information Document and Pre-investment Disclosure Document are available on the Premier Miton website, or you can request copies by calling us on 01483 306090.

Financial Promotion issued by Premier Miton Investors. Premier Portfolio Managers Limited is registered in England no. 01235867. Premier Fund Managers Limited is registered in England no. 02274227.  Both companies are authorised and regulated by the Financial Conduct Authority and are members of the ‘Premier Miton Investors’ marketing group and subsidiaries of Premier Miton Group plc (registered in England no. 06306664). Registered office: Eastgate Court, High Street, Guildford, Surrey GU1 3DE.

006691/240522

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The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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This section of the website and the content it contains is for retail clients only and by persons who are resident in the United Kingdom [who are not US persons]. Professional advisers should refer to the Professional Advisers site.

The content of the pages of this website is for your general information only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

You acknowledge that such information may contain inaccuracies or errors and we expressly exclude liability for any such inaccuracies or errors to the fullest extent permitted by law. Your use of any information or materials is entirely at your own risk, for which we shall not be liable.

The information contained on this website does not constitute an offer or solicitation to sell or purchase shares in the funds or portfolios or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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Disclaimer

This section of the website and the content it contains is for professional financial advisers only and should not be relied upon, or circulated to, retail clients. Retail clients should refer to the Private Investor's site.

The content of the pages of this website is for your general information and use only. It, and the products and services described within it, are subject to change without notice. We shall not be liable to you, or any third party, for any amendment, modification, suspension or discontinuance of any product or service described on our website. Neither we, nor any third parties, provide any warranty or guarantee as to the accuracy, timeliness, performance, completeness or appropriateness of the information and materials made available on this website.

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The information contained on this website does not constitute an offer or solicitation to sell shares in the funds or portfolio or to provide you with other products or services. Any application or investment must only be made on the basis of the relevant documentation of the investment, such as, for example, terms and conditions. The information on this website does not constitute any investment, tax, legal or other advice. Persons who do not have professional experience in matters relating to investments should always consult with an independent financial adviser before making an investment decision. Any opinion expressed on individual funds, services or products, represent the views of the individual at the time of preparation and should not be interpreted as a personal recommendation to buy or sell or otherwise trade all or any of the investments that may be referred to.

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