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The most consistent IA UK Smaller Companies funds of the decade

29 January 2019

Six retail small-cap funds have beaten the sector average in eight or more of the past 10 calendar years.

By Anthony Luzio,

Editor, FE Trustnet Magazine

Marlborough UK Micro Cap Growth has been the most consistent IA UK Smaller Companies fund of the past decade for retail investors, beating the sector average in nine of the past 10 years.

The Schroder Institutional UK Smaller Companies fund managed to beat the sector in every single one of the past 10 years. However, as its name suggests, the fund is marketed at institutional investors only.

Of the 42 funds with a track record long enough to be included in the study, another five funds beat the sector in eight of the past 10 calendar years and another seven managed it in seven.

Performance of funds vs sector

Source: FE Analytics

Marlborough UK Micro Cap Growth is headed up by industry veteran and FE Alpha Manager Giles Hargreave. Hargreave (pictured) runs a highly diversified portfolio of more than 200 stocks, with the top-10 currently accounting for less than 15 per cent of assets, helping to spread risk.

Analysts at Hargreaves Lansdown described Hargreave as “one of the best UK smaller companies fund managers around”, adding that his long-term track record is “nothing short of superb”.

“The fund's outperformance of the FTSE Small Cap index has been exceptional,” they said. “Our analysis suggests that is mainly down to the manager's stockpicking skills.

“Hargreave believes smaller companies have more potential to grow than larger ones. But he also thinks a really good understanding of each company is needed to identify the stars of tomorrow from the ones that could go bust. As well as thorough analysis, he also relies on his 'feel' for the market to decide where to invest.”

FE Invest said Hargreave’s process involves working with technology specialist Guy Feld and eight analysts who meet the management teams of prospective investments to understand what could drive the growth of their businesses and how their industries are developing.

“They tend to build up positions slowly, and rarely allow any one stock to make up more than 2 per cent of the fund,” the group explained. “They trim stocks as they become expensive and are strict when it comes to selling stocks they have lost faith in.”


It added that Hargreave Hale as a stockbroker “is perfectly positioned to cover the smaller companies universe” with a very experienced team with great contacts in the sector.

“This fund is a good way to access the extra growth potential of smaller companies without risking your cash in the ‘blue sky’ companies, which can get a lot of attention but which never make a profit,” FE Invest noted.

However, Hargreaves Lansdown warned the fund won't always do well.

The analysts explained: “The year 2008 was a prime example of how the fund and smaller companies in general are more volatile than larger companies. Performance at the end of 2018 was also poor.”

Data from FE Analytics shows Marlborough UK Micro Cap Growth has made 540.23 per cent over the 10-year period in question, compared with 314.32 per cent from the sector.

Performance of fund vs sector and index over 10yrs

Source: FE Analytics

The £1.1bn fund has ongoing charges of 0.79 per cent.


Two of the funds that beat the sector in eight of the past 10 calendar years managed to deliver a higher total return over this time than Schroder Institutional UK Smaller Companies and Marlborough UK Micro Cap Growth: Fidelity UK Smaller Companies, with gains of 636.32 per cent, and TB Amati UK Smaller Companies, with gains of 574.87 per cent.

Performance of funds vs sector over 10yrs

Source: FE Analytics

Fidelity UK Smaller Companies is headed up by FE Alpha Manager Alex Wright, although Jonathan Winton, who joined in March 2013, now tends to manage the fund on a day-to-day basis. Square Mile Investment Consulting & Research analysts pointed out that much of the fund’s outstanding performance came in the earlier years of Wright’s tenure.

The managers have a contrarian style, searching for unloved companies that are turning themselves around, and investing before the market recognises their potential.

However, the fund soft-closed to new money in April 2016 “to protect the integrity of the investment process”.

Fidelity UK Smaller Companies is £345m in size and has ongoing charges of 0.92 per cent.

TB Amati UK Smaller Companies is headed-up by FE Alpha Manager Paul Jourdan, who was joined by David Stevenson in 2012 and Anna Wilson in 2018.

Each manager is responsible for researching different industries, but has to convince their colleagues on the merits of each stock they recommend before it is added to the fund. They look for businesses with competitive advantages and strong management teams.

At £206m, the fund is smaller than many of its sector peers, which the analysts at FE Invest said gives it an advantage in this area of the market.

“This is because the managers are able to buy the smallest stocks in their universe which have greater potential for outperformance and which become unavailable to funds as they grow,” they explained.

“It also means they are able to buy and sell meaningful positions quicker and without losing money on the trades, unlike larger funds which are forced to become major shareholders in companies if the investment is to be meaningful.”

FE Invest analysts noted Amati runs a venture capital trust (VCT), which invests in companies listed on the Alternative Investment Market, giving Jourdan and his team access to them before they graduate to the main market.

“These considerations make this fund a good option for those seeking full exposure to the outperformance potential of smaller companies,” they added.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.