"I made some poor investment decisions," he said, in an exclusive interview with FE Trustnet. "I bought the wrong stocks – Luminar, for example. We had a position in HMV too, and this was a company that tried to transition to a more internet-based model but failed."
"The fund grew too big at £3bn and when you’re running a fund that big there’s no point chasing your positions."
Launched in 1999, Schroder UK Mid 250 was one of the most highly regarded UK growth funds in the early 2000s, but the credit crunch instigated a dramatic fall in performance, and mass outflows soon followed.
Performance of fund vs sector and index over 10-yrs
Source: FE Analytics
The fund shrank from a peak of £3bn to its current size of £1.17bn.
However, it has had a stellar year in 2012, becoming a top-quartile performer, more than doubling the returns of its sector and beating its mid cap benchmark.
Performance of fund vs sector and index in 2012
Source: FE Analytics
Brough admits that the fund became too big to handle: "The fund had a great five-year start. I think at £3bn it was too big. If it got to £2bn in the future I think that would be the limit."
He adds that he had too much exposure to domestic demand rather than to companies that had revenue streams from outside the UK.
However, he also says that a dramatic change in investor sentiment and behaviour made managing money harder after the financial crash.
He commented: "You haven’t been rewarded for being a contrarian in the past few years. Before, if it was a reasonable business but unloved by the market, you were eventually rewarded, even if you had to wait, but now people are obsessed with momentum."
"People want to be invested in the Stella Artois stocks – those that are reassuringly expensive. In my 25 years of running money that’s the only time this has happened."
Brough says he has revamped his strategy, cutting down the number of holdings from 75 to 54 high-conviction stocks and looking to take advantage of the internet revolution.
"Now I’m looking for companies that can take quite a strong position and then transfer it onto the internet – Sports Direct for example."
"William Hill is another company that’s doing really well off the back of the internet – 70 per cent of betting revenues are online now."
"The Daily Mail is a company that people are starting to realise is not just a newspaper but an internet company."
FE Trustnet research has shown that mid cap funds tend to outperform their large cap rivals over the longer term, albeit with higher volatility.
Brough says that even for income-seeking investors, the FTSE 250 is a better place to invest.
"If you only invest in equities you need a rising stream of dividends and earnings. Mid caps do that; and they tend to open up new areas in the economy too, so they’re more dynamic. Only 65 of the 250 companies that were in the 250 when I started are still there."
"The trouble is if you look at the FTSE 100, mining, oil, banks and telecoms make up about 40 per cent and it’s quite hard to get those all going in the right direction."
"In the 250, the biggest holding may be 1.5 per cent of the index rather than 9 per cent as it is with the FTSE 100, so it’s easier to get diversification."
Before its recent turnaround, the fund was named in Bestinvest’s list of dog funds – those that consistently underperform their sector and benchmark – on six consecutive occasions.
Brough likens this period to British cyclist Bradley Wiggins’ first, vain attempts to win the Tour de France.
"I like to think of the fund as the Bradley Wiggins of the industry – when he first started he won a number of Olympic golds but then he tried the Tour de France."
"He was a bit fat for the race, not really up to it and didn’t do too well, but he trained hard, changed what he was doing and ended up winning it."
"I even grew some sideburns."
Schroder UK Mid 250 has a minimum investment of £1,000 and a total expense ratio (TER) of 1.66 per cent. Brough also heads up the Schroder UK Smaller Companies fund.