Over the last several years, small- and medium-sized companies have surged ahead of larger firms in the UK, delivering stellar returns.
However, many high-profile investors worry that the risks of investing in these sectors now outweigh the rewards.
For investors who feel it is time to take profits from their small and mid cap gains, here are five funds that would benefit from a large cap turnaround.
JOHCM UK Growth
Mark Costar, who runs the JOHCM UK Growth portfolio alongside FE Alpha Manager Alex Savvides, recently told FE Trustnet he has never seen a time when mid caps have been so expensive.
As a result, the FE Alpha Manager is shifting his £288.3m portfolio towards FTSE 100 firms.
The fund has a long track record of outperforming the IMA UK All Companies sector and the FTSE All Share, delivering top-quartile returns over one, three, five and 10 years.
Over the last decade it has made 178.1 per cent, compared with 128.1 per cent from the sector and 133.07 per cent from the FTSE All Share.
Performance of fund vs sector and index over 10yrs
Source: FE Analytics
Among the top holdings in the fund are UK healthcare giant GlaxoSmithKline, FTSE 100 banks Barclays, HSBC and Lloyds, and oil and gas giants Royal Dutch Shell and BP.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.39 per cent.
Dunedin Income Growth
In the closed-ended space, investors may want to consider Aberdeen’s £451.3m Dunedin Income Growth trust.
The managers of the trust say they do not see value in the small and mid cap growth space anymore, so they are buying large caps instead.
The five crown-rated trust, run by Jeremy Whitley and Ben Ritchie, holds Vodafone, GlaxoSmithKline, Tesco and Unilever in its top-10.
It has outperformed the FTSE All Share over one, three, five and 10 years, returning 152.18 per cent over the last decade. The IT UK Growth & Income sector made slightly more over the period, at 156.92 per cent.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
It also has an attractive 4 per cent yield.
The trust is trading at value, with 6 per cent gearing. It has ongoing charges of just 0.62 per cent.
Liontrust Special Situations
Star UK equity managers Julian Fosh and Anthony Cross agree now is the time to buy into quality, including the steady income-paying businesses at the top end of the FTSE.
“Quality companies are trading at their least expensive multiples since 2009,” Cross told FE Trustnet in a recent interview.
The managers also said they are finding much more value in the larger end of the market, and are happy to hold on to large cap favourites, which are having a rough time compared with cyclicals.
Their five crown-rated Liontrust Special Situations fund holds FTSE 100 drinks producer Diageo, consumer goods giant Unilever and gas and oil conglomerates BP and Royal Dutch Shell in its top-10.
Since launch in November 2005, the fund has more than doubled the returns of the IMA UK All Companies sector and FTSE All Share, picking up 186.7 per cent, according to FE Analytics.
Performance of fund vs sector and index since launch
Source: FE Analytics
It is a multi-cap fund, with 41.07 per cent in the FTSE 100, 28.54 per cent in the FTSE 250 and 16.5 per cent in the FTSE AIM. It is yielding 0.68 per cent.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.88 per cent.
Cazenove UK Equity Income
Cazenove’s Matthew Hudson is another manager who is putting more emphasis on large caps in his five crown-rated Cazenove UK Equity Income fund.
Hudson is moving into the large cap area of the market, which he believes is more attractively valued than the expensive mid caps, as FE Trustnet pointed out in a recent article.
The manager holds many of the usual suspects in his top-10, including Vodafone, Barclays, GlaxoSmithKline and British American Tobacco. He also has exposure to some of the out of favour miners such as Rio Tinto.
The £649.4m fund has beaten the IMA UK Equity Income sector and the FTSE All Share over one, three and five years.
Since launch in May 2005, the fund has made 123.23 per cent while the sector and index gained 87.32 per cent and 95.7 per cent respectively.
Performance of fund vs sector and index since launch
Source: FE Analytics
It is yielding 3.4 per cent.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.62 per cent.
AXA Framlington UK Growth
AXA Investment Managers’ Jamie Hooper told FE Trustnet recently that a massive opportunity had opened up in large caps due to their underperformance compared with firms further down the market cap spectrum.
Hooper is seeing far more opportunity in large caps than small and medium sized companies in the current market environment, which is why investors may want to consider the AXA Framlington UK Growth fund.
The top holdings in the portfolio include HSBC, Lloyds, Vodafone and GlaxoSmithKline.
Since the manager took over the fund in December 2006, it has made 53.13 per cent, compared with 40.94 per cent from the FTSE All Share and 39.56 per cent from the IMA UK All Companies sector.
Performance of fund vs sector and index since 2006
Source: FE Analytics
It is yielding 1.22 per cent.
The fund requires a minimum investment of £1,000 and has ongoing charges of 1.62 per cent.
