Hargreave has more than doubled the returns of his peer group composite over five and 10 years, and outperformed over one and three. Over 10 years, Hargreave has made 384.2 per cent across his four unit trusts and two VCTs, while his peers have picked up 174.99 per cent, according to FE Analytics.
The manager says the strength of the team behind him has been one of the major reasons for his success.
"The fact that we’ve got a big team helps me to outperform. I’ve been very good at choosing people to come and work in the team," he said.
"We’re all a bit maverick here and don’t have a bunch of executives running the business."
Hargreave says the following rules have made him the manager he is today:
- A pure focus on investment management
- A big team of analysts – 15 people
- Meeting a large number of companies
- A broad and well-diversified portfolio
- Avoiding being too rigid with the rules
This allows him to spend more time focusing on selecting strong companies with the ability to grow over time.
He adds that his 15-strong investment team is able to meet an enormous number of companies each day, giving him a broad base of ideas to choose from.
"I wouldn’t say we see less than half a dozen companies a day, and some days more," he said.
"It’s important to have a spread of stocks and not be too concentrated."
Hargreave adds that private investors would face a nearly impossible task of replicating the composition of his small cap portfolios, which each hold roughly 225 individual stocks.
"If you tried to copy my portfolio, how long would it take you and what price would you have to pay?"
The manager tends to keep his holdings small and varied, but does not always stick to this rule.
While he speaks to investors on both sides of the fence – those that want a high-conviction portfolio and those that want a broad range of holdings – he ignores both.
"I go on doing it the way I’ve always done it and that’s that I won’t tend to hold more than 2 per cent in a company, but I struggle to get to 2 per cent," he said.
"Conviction fund management is not for me. I like to be flexible, but there are always exceptions to the rule and times when it’s not the right thing to do."
Among some of Hargreave’s favourite stocks are oil and gas exploration company Cove, online retailer ASOS and IT company WANdisco.
The manager admits that sometimes he does get his calls wrong, but that is just part of small cap investing.
"If you can get a ratio of 3:1 winners to losers, you will do incredibly well," he said.
Hargreave is the sole manager of the four crown-rated Marlborough Special Situations fund and co-manager on the small cap focused Marlborough UK Micro Cap Growth portfolio.
The manager also heads up the wider Marlborough UK Leading Companies fund, and the Marlborough Multi Cap Income portfolio, which sits in the UK Equity Income sector.
Hargreave’s two small cap focused funds have outperformed the IMA UK Smaller Companies sector over three and five years and, in the case of the Special Situations fund, 10 years as well.
His Special Situations portfolio has made an impressive 572.95 per cent over the last decade, more than doubling the returns of its sector over the period.
Since launch, the flagship fund has made 1,526.78 per cent, while the sector is up 404.4 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
No fund in the sector with a track record over that length of time has even come close. The BlackRock UK Smaller Companies portfolio was the next highest grossing fund – it made 661.98 per cent over the period.
"It’s the consistency I like about it," Hargreave said of his Marlborough Special Situations fund.
"It’s kind of a fairy tale in a way."
"The laws of compound growth are amazing as long as you leave your investment in for the long term; we’ve had two bear markets since the fund launched and we halved in each, but who cares," he said. "You just have to sit tight and get through them."
The fund requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.54 per cent.
Hargreave continues to be bullish about the market and believes even with valuations going up, there is much more upside to be had.
"It’s a wonderful market at the moment, as good as you can get," he said.
Hargreave points out an increase in M&A activity is a good sign for the future.