Mark Slater's MFM Slater Growth has the highest Alpha of any fund in its IMA UK All Companies sector over a one-year period, and has the second-highest score over three- and five-year periods.
Slater’s fund has returned 84.45 per cent in the last five years, outperforming its FTSE All Share benchmark by more than four times.
The manager (pictured right) favours companies that operate in niche areas, which have a low correlation to the general market.
"Though the following companies are quite different from each other in terms of the sector they are in, they all operate in niche areas that will continue to grow rapidly."
"They are all priced sensibly in relation to their growth rates – that is to say they have low price-to-earnings ratios – and they all generate cash and have strong balance sheets," he said.
Entertainment One
"This media-rights business owns a valuable film and TV library, is highly cash generative, is growing at a low double-digit growth rate and trades on a modest price P/E of 11."
"The company recently announced a small earnings-enhancing acquisition and has another two similar deals lined up this year."
"There is also considerable excitement about the prospects for ETO's Peppa Pig children's character, which recently launched in the US."
"The character contributes about 15 per cent of ETO's earnings and success in the much larger US market would see profits from Peppa multiply several-fold."
According to Financial Express data, six funds have Entertainment One in their top-10 holdings, including the £275m Investec UK Smaller Companies fund.
Cape
"Cape is a leading non-mechanical oil and gas services business. The company has excellent visibility, with 50 per cent of its revenues relating to maintenance work."
"Owing to its strategic positioning in the Pacific Rim and the Middle East, we expect Cape to grow at 15 per cent per annum during this period. A P/E of 12 does not adequately reflect this growth rate and is a 35 per cent discount to its peers."
Twelve funds hold Cape in their top-10 holdings, including the £358m Marlborough Special Situations fund.
Andor Technology
"Andor is a leader in the high-performance camera market, serving research and industrial markets. The company has just announced that first half trading was ahead of expectations, prompting a 10 per cent earnings-forecast upgrade."
"Its new model, which targets the much larger mid-market, has been received well by customers. The tax charge is rising this year to more normal levels so profits growth will not be fully reflected in the earnings growth rate."
"Nonetheless, further upgrades are likely, reducing the prospective P/E of 18 down further. In addition, acquisitions are likely in the near future."
Jupiter UK Smaller Companies is one of five funds that hold Andor in their top-10.
Hutchison China MediTech
"Hutchison's core Chinese healthcare business is a strong player in the prescription and OTC Chinese traditional medicine market."
"This part of the business is growing at 20 per cent per annum, driven by state programmes to improve healthcare for urban workers and higher consumer spending power."
"It also owns one of China's leading drug R&D businesses (valued at £1 per share or 25 per cent of the current market cap) and a very fast-growing organic foods business which could rival the core healthcare business within five years."
"Majority owned by Li Ka-Shing's Hutchison Whampoa, shareholders in HCM also benefit from an unusual level of corporate governance."
Slater is the only manager in the IMA unit trust and OEIC universe to hold the stock in his top-10 holdings.
Oxford Instruments
"This company designs and manufactures high technology tools and systems for research and industrial applications. This IP [intellectual-property] rich, niche business services high-growth areas like nanotechnology."
"Turnover growth has been accompanied by margin improvements, and we expect margins to continue to rise for some time to come. Trading on less than 16 times prospective earnings, the shares are modestly priced in relation to Oxford's growth rate."
"There is material scope for upgrades to forecasts both from strong trading and potential acquisitions. The company is the biggest holding in the £162m Aberdeen UK Smaller Companies fund."
Slater also manages the MFM Slater Recovery and MFM Bowland funds, which have both outperformed their sector over one, three and five years.
According to Financial Express data, the manager has outperformed his peer group composite by just under 30 per cent in the last five years, albeit with slightly more volatility.
Average performance of funds vs peer group over 5-yrs
Source: Financial Express Analytics