UK All Companies: The adventurous choice
In this sector, funds with a focus further down the market cap spectrum offer greater potential for growth.
The FE five crown-rated Neptune UK Mid Cap fund has more than doubled in size this year following strong performance in the run-up to its third anniversary.
Its focus on mid caps gives it higher growth potential than funds that favour larger, more defensive stocks, making it suitable for investors that prioritise the prospect of capital appreciation over preservation.
"We have always been believers in mid cap investing. People have become more focused on defensive large caps but we like mid caps because they are not as risky but have more growth potential," said Meera Patel, senior analyst at Hargreaves Lansdown.
Neptune UK Mid Cap
has consistently been a top-quartile performer in its IMA UK All Companies sector since launch in December 2008. It didn’t beat its FTSE 250 benchmark until 2011, however, when FE Alpha Manager Mark Martin
returned 3.65 per cent compared with a loss of 10.6 per cent from his benchmark, and he is 13.27 per cent up so far this year while the FTSE 250 has gained only 5.91 per cent.
Performance of fund vs index and sector since launch
Source: FE Analytics
Patel says her concern with the fund is Martin’s relative inexperience in mid cap investing. However, data from FE Analytics
shows he has outperformed his peer group composite every year since he came onto the scene in 2008.
Patel commented: "In the mid cap space there are lots of cash-generative businesses with strong balance sheets. Companies have also been paying income in the last few years so we have seen dividends being paid."
Neptune UK Mid Cap is not a fund for those looking for income, as its yield is only 0.43 per cent. The fund instead aims for capital growth, and to that end also invests in the largest 50 companies in the FTSE Small Cap Index.
Mid cap funds need to keep assets under management to a relatively low level, as when they get too big they often can't buy a significant stake in a smaller company without becoming a majority shareholder. At £8.1m, the Neptune UK Mid Cap fund is still very small and so now may be the time to give it consideration.
In comparison, the Schroder UK Mid 250
fund currently has £1.28bn AUM, having once been as large as £1.75bn.
Performance of fund vs index since launch
Source: FE Analytics
Once considered a star of the space, it made 250 per cent between March 2003 and May 2007, but is down 22.24 per cent since then, with many blaming this on its bloated size.