The five crown-rated fund is one of the best-performing funds in the IMA unit trust and OEIC universe over a three-year period, with returns of almost 100 per cent, and Wright’s reputation is growing as one of the leading UK small cap managers in the business.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
To give the manager maximum flexibility, Fidelity signalled its intention to soft-close the fund at £280m.
However, the group has taken steps to slow inflows in to the fund already, even though assets under management (AUM) are short of this target, at £248m.
A spokesperson for Fidelity commented: "Fidelity UK Smaller Companies has experienced strong interest from investors in recent months, attracted by the strong performance achieved by portfolio manager Alex Wright (pictured) since launch."
"Our priority is to protect the interests of existing customers."
"In order to ensure that the portfolio manager retains the flexibility to implement his investment strategy and is not constrained by liquidity, we are taking steps to slow flows into this fund."
"From 15 April 2013 [today], we will be removing the fund from all platforms, including Fidelity and third-party platforms."
Investors who already invest in the fund via a monthly savings plan will still be able to carry on drip-feeding money in, but it is now closed to all new money.
For those left frustrated by the soft-closure, here are three alternatives that could fill the void.
Fidelity Special Values IT
The obvious alternative to Fidelity UK Smaller Companies is Fidelity Special Values investment trust – the only other portfolio that Wright currently heads up at Fidelity.
He took it over from Sanjeev Shah in September last year and has made a terrific start, leading it to significant outperformance over its sector average and FTSE All Share benchmark.
Performance of fund vs sector and index since Sept 2012
Source: FE Analytics
The trust sits in the IT UK Growth sector, but Wright has increased its focus on small and mid caps since replacing Shah.
For this reason, it should be viewed as a multi-cap trust, rather than a typical UK Growth one, which tends to have a large cap bias.
There are some cross-holdings in the fund and trust, with United Drug and Cable & Wireless Communications appearing in both.
However, Fidelity Special Values has significantly more exposure to large caps, and so cannot be considered to be a pure UK small cap option. Shell, HSBC and GlaxoSmithKline are all top-10 holdings.
The £476m trust has an ongoing charges fee (OCF) of 1.24 per cent. It is on a discount of 9.4 per cent, which is around average for the IT UK Growth sector, but below average for IT UK Smaller Companies.
The discount has come in since Wright’s appointment, from around 13 per cent. This has aided performance quite significantly.
Stripping out the impact of the discount on returns, it has underperformed the Fidelity UK Smaller Companies since September last year. Our data shows the trust's net asset value (NAV) is up 25.7 per cent over this time, compared to 34.99 per cent from the fund.
Numis’ Charles Cade recently tipped the trust in an interview with FE Trustnet.
Marlborough UK Micro Cap Growth
Giles Hargreave has been one of the go-to small cap managers of the last decade, building a strong track record for his flagship fund – Marlborough Special Situations – in the process.
Strong inflows have seen the FE Alpha Manager tilt the £578m fund more to mid caps in recent years, however, prompting some experts to question the merit of holding it as a pure small cap play.
The much smaller Marlborough UK Micro Cap Growth portfolio is a better alternative to Fidelity UK Smaller Companies, though.
It has more of a tilt to small and micro cap companies than the Special Sits fund, which has been a big plus recently; according to FE data it is up 105.56 per cent over five years, beating its counterpart by more than 20 percentage points.
Performance of funds vs sector over 5yrs
Source: FE Analytics
Neither of Hargreave’s funds have reached the heights of Fidelity UK Smaller Companies though, which is up 188.07 per cent over the five-year period. However, both have been less volatile.
Marlborough UK Micro Cap Growth is a highly diversified portfolio of well over 200 companies, which helps to dampen single-stock risk. No one stock has more than a 2 per cent weighting.
More than 80 per cent of the fund is in "micro stocks", which Hargreave defines as those with a market cap of less than £250m. No single stock in the portfolio has a market cap of more than £1bn.
Hargreave currently has a major tilt towards technology, telecoms and media, which has a 30 per cent weighting.
Five of the fund’s top-10 positions are in tech, including Advanced Computer Software and Idox – another software developer.
The FE Research team rates the fund very highly and includes it in the FE Select 100 as a result.
"This fund has a similar investment approach to Marlborough Special Situations, which is also run by Hargreave," the team said.
"The main difference is that this fund focuses on micro-capitalisation stocks, which represent the very smallest companies on the market."
"It is one of the best UK funds in terms of performance and quality of investment team. In micro-cap investing, stockpicking is the main driver of performance, which puts the emphasis on in-depth knowledge of companies and this works in the fund’s favour."
Hargreave tends to have a sizeable weighting to cash – which currently stands at 5.7 per cent – to help with the liquidity issues that surround micro cap investing.
It requires a minimum investment of £1,000 and has an OCF of 1.54 per cent.
TB Amati UK Smaller Companies
FE Alpha Manager Paul Jourdan’s £12.5m fund is by far the most nimble of those on the list.
Jourdan recently told FE Trustnet that he would consider soft-closing the fund once it got to between £150m and £200m, because anything more would compromise his style.
Like Wright and Hargreave, Jourdan is a stockpicker, choosing companies that he believes can grow, at as cheap a price as possible.
One of the major themes in his portfolio at the moment is natural resources, a sector he believes represents outstanding value.
Victoria Oil & Gas and gem specialist Gemfields are both currently significant holdings.
Jourdan has led the fund to strong performance over the last decade or so, beating his sector average and Numis Smaller Companies ex IT benchmark over three, five and 10 years.
It has struggled in the shorter term though, underperforming both over one year.
While the fund has outperformed, it has significantly underperformed the Fidelity and Marlborough funds; however, given its small size and low profile, it is unlikely to see vast inflows, ensuring that it will retain its small cap focus for many years to come.
TB Amati UK Smaller Companies requires a minimum investment of £1,000 and has an OCF of just 1.22 per cent, making it one of the cheapest options in the IMA UK Smaller Companies sector.