Since the start of the year, the FTSE Small Cap index has surged ahead more than 30 percentage points, making more even than the mid cap FTSE 250, which gained 27.61 per cent.
Both indices were well ahead of the rallying FTSE All Share, which has picked up 19.46 per cent so far this year.
Year-to-date performance of indices
Source: FE Analytics
Both the FTSE Small Cap and FTSE 250 indices have outperformed the FTSE All Share over three and five years as well.
Unfortunately for investors who want access to this growth, many of the best and brightest fund managers in the UK smaller companies game are no longer accessible, having soft-closed due to strong inflows.
FE Alpha Manager Alex Wright’s Fidelity UK Smaller Companies fund has closed entirely to new money, while FE Alpha Manager Paul Marriage’s Cazenove UK Smaller Companies fund and FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund have also moved to stem inflows.
Chris Mayo (pictured), investment director at Wells Capital Investment Solutions, says there is now a genuine shortage of good UK small cap funds.
"All the good ones, the big ones with good track records, are all being closed up," he said.He points out that Marriage’s Cazenove UK Smaller Companies fund, for example, has quadrupled in size over the last year or so – something he says would present challenges for any fund manager at the smaller end of the market cap spectrum.
Here we look at some of the best funds that are still open to new money, are smaller than £100m in size and receive less attention in the media than some of their larger counterparts.
R&M UK Equity Smaller Companies
The R&M UK Equity Smaller Companies fund has a mere £50.3m in assets under management but it is one of the best-performing funds in the IMA UK Smaller Companies sector over one, three and five years.
The fund has returned 214.34 per cent over the past five years, making it the eighth best-performer in the sector over that period. Its Numis Smaller Companies ex Investment Companies index benchmark made 213.99 per cent.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund is tilted toward industrials, with 32.9 per cent of its assets in the sector. It is yielding 0.56 per cent.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.73 per cent.
It is headed up by former Investec small cap manager Daniel Hanbury.
Discretionary
The tiny £29m Discretionary fund, run by Simon Knott since 1990, has racked up impressive returns over the last three years. It is currently the fourth best-performing portfolio in the sector over that period, with returns of 85.47 per cent.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
The fund lags behind the sector over five and 10 years due to its poor performance in 2007 and 2008.
It is somewhat unusual for a small cap portfolio in that it has a yield of 1.46 per cent, one of the highest figures in the sector.
Like the R&M portfolio, it favours services and industrial stocks. It has a higher exposure to cash, at 4.16 per cent of the fund.
The fund requires a minimum investment of £3,000 and has a total expense ratio of 1.13 per cent.
Unicorn UK Smaller Companies
Another fund that Mayo backs as a good alternative to the soft-closed giants is the four crown-rated, £22.5m Unicorn UK Smaller Companies portfolio.
It is managed by Simon Moon and FE Alpha Manager John McClure.
"If you’re a real small cap manager, you do need a small-sized fund to work well," Mayo said. "The larger the fund, the larger your smallest holding has to be."
The tiny Unicorn vehicle has performed well over the last one, three and five years, though it has lagged behind the sector over the last decade.
Over five years the fund has made 74.28 per cent, beating the IMA UK Smaller Companies sector. The fund slightly underperformed the Numis index over the period.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
Moon told FE Trustnet more about his approach in an article last week.
The fund is available via platforms and has ongoing charges of 1.13 per cent.
Franklin UK Smaller Companies
The £70m Franklin UK Smaller Companies fund has seen a dramatic turnaround in performance since Richard Bullas and FE Alpha Manager Paul Spencer took the helm in June of last year.
Since then the fund has gained 54.65 per cent, ahead of the IMA UK Smaller Companies sector and broadly in line with the Numis Smaller Companies index.
Performance of fund vs sector and index since June 2012
Source: FE Analytics
Spencer and Bullas have revamped the portfolio, hacking out 33 stocks and refocusing it away from illiquid micro caps towards companies ranging in size from £100m to £1bn.
The fund now favours industrial stocks, which make up nearly 40 per cent of its assets. Its largest holding is British flooring retailer Topps Tiles.
It requires a minimum investment of £500 and has ongoing charges of 1.7 per cent.
