Old Mutual UK Smaller Companies and Marlborough UK Micro Cap Growth are the most consistent retail IA UK Smaller Companies funds of the past decade, according to research by FE Trustnet.
The two funds beat the sector average in nine of the past 10 calendar years, while four more have managed to beat it in eight.
Most consistent IA UK Smaller Companies funds over 10yrs
| Name | 2017 (%) | 2016 (%) | 2015 (%) | 2014 (%) | 2013 (%) | 2012 (%) | 2011 (%) | 2010 (%) | 2009 (%) | 2008 (%) | Years of outperformance |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Schroder Institutional UK Smaller Companies* | 30.71 | 12.8 | 19.08 | -0.55 | 37.45 | 26.96 | -5.74 | 37.11 | 54.89 | -39.31 | 10 |
| Old Mutual UK Smaller Companies | 38.29 | 11.71 | 21.16 | -0.31 | 39.42 | 28.31 | -8.68 | 34.06 | 39.24 | -32.78 | 9 |
| Marlborough UK Micro Cap Growth | 33.29 | 15.05 | 13.92 | 3.46 | 39.77 | 23.24 | 2.17 | 40.24 | 59.7 | -37.95 | 9 |
| Old Mutual UK Smaller Companies Focus | 50.71 | 23.72 | 22.22 | 0.44 | 42.68 | 29.31 | -10.04 | 37.06 | 44.83 | -34.94 | 8 |
| F&C UK Smaller Companies | 29.35 | 6.73 | 18.66 | 2.19 | 38.02 | 31.42 | -6.07 | 35.19 | 44.86 | -38.53 | 8 |
| Investec UK Smaller Companies | 30.78 | -1.15 | 12.49 | -1.18 | 46.59 | 25.27 | -1.48 | 41.75 | 71.99 | -38.58 | 8 |
| Janus Henderson UK Smaller Companies | 28.11 | 8.36 | 15.92 | 1.68 | 39.56 | 35.46 | -7.4 | 41.05 | 45.76 | -41.25 | 8 |
| IA UK Smaller Companies | 27.18 | 8.05 | 14.86 | -1.65 | 37.18 | 22.6 | -9.04 | 31.56 | 50.18 | -40.54 | N/A |
Source: FE Analytics
Marlborough UK Micro Cap Growth made the highest total return over the 10-year period, at 342.02 per cent, compared with 179.02 per cent from the sector.
The fund focuses on micro-capitalisation stocks, meaning those with a market cap below £250m at the time of purchase.
It is headed up by FE Alpha Manager Giles Hargreave, one of the most experienced managers in the business, who is famed for his highly diversified approach – the portfolio often contains more than 200 companies, with the top-10 currently making up just 13.48 per cent of assets.
Hargreave’s process involves meeting the management teams of prospective investments to understand what could drive the growth of the business and how its industry is developing.
Analysts at FE Invest said the fund is perfectly positioned to cover the extensive smaller companies universe and has a very experienced team with great contacts in the sector.
“This is a good way to access the extra growth potential of smaller companies without risking your cash in ‘blue-sky’ companies, which can get a lot of attention but which never make a profit,” the team explained.
“The managers look for companies which are profitable or with a very clear path to profitability in the near future.”
Marlborough UK Micro Cap Growth is £1.1bn in size and has ongoing charges of 0.8 per cent.
Old Mutual UK Smaller Companies made 282.51 per cent over the period in question, compared with 184.72 per cent from its Numis Smaller Companies ex Investment Companies index benchmark.
Performance of funds vs sector over 10yrs
Source: FE Analytics
Its FE Alpha Manager Daniel Nickols seeks to invest in the most attractive companies based on his view of the current positioning of economic cycles. At the macroeconomic level a range of factors is therefore considered such as economic growth, the outlook for inflation and the interest rate cycle.
*Institutional only
Stock selection favours companies where the manager and team feel there is the potential for at least one of the following: an upgrade in earnings, a re-rating of the stock's valuation or sustained level of above-average earnings growth.
Square Mile holds Old Mutual’s small- and mid-cap equities team in high regard.
“Given that the investment process is structured in order to have a consideration of the broader economic backdrop, the manager has the flexibility to adjust the portfolio's positioning to capitalise on more defensive or cyclical opportunities at the appropriate juncture,” the team said.
“Such pragmatism has been adopted to ensure that fund performance is more consistent relative to its benchmark.”
However, Square Mile said the process is not immune to periods of more variable returns, particularly over the short term.
Nickols expects reasonable global growth and only a measured and gradual rate of monetary policy normalisation over the coming 12 months.
“Against this backdrop, our judgement is that genuine growth, accompanied where possible by positive earnings surprises, can continue to command a premium multiple, and as a result we remain overweight this dynamic,” he said.
Old Mutual UK Smaller Companies is £1.35bn in size and has ongoing charges of 1.03 per cent.
The most consistent fund from the IA UK Smaller Companies sector, however, is Schroder Institutional UK Smaller Companies, which has beaten its sector average in every one of the past 10 calendar years. As its name suggests, however, the fund is institutional-only and requires a minimum investment of £100,000.
The £474m fund has been headed up by FE Alpha Manager Andrew Brough since 1992, with Iain Staples joining him in 2015. It has made 270.2 per cent over the 10 years in question compared with a gain of 126.69 per cent from its FTSE Small Cap (ex IT) index benchmark.
Ryan Lightfoot-Brown, research analyst at Chelsea Financial Services, said: “The fund has tended to perform well relative to its average peer during down markets and, in instances where it hasn't, it has bounced back strongly.”
Brough also manages a retail version of the fund: Schroder UK Smaller Companies. However, this does not have a 10-year track record.