Over the past 12 months, Fidelity UK Smaller Companies and Cazenove UK Smaller Companies – headed up by FE Alpha Managers Alex Wright and Paul Marriage – as well as Miton Multi Cap Income, BlackRock European Dynamic and Odey UK Absolute Return – have all closed to new investors.With a huge number of investors hoping to beat the ISA deadline in just over a month’s time, many top-performing, popular funds are susceptible to closure in the near-term.
If investors get in now there’s a good chance they will be able to add to their existing positions via a monthly savings plan, making these funds an even more attractive option at this point in time.
Here are five funds that the experts think are at risk of closure in the coming months.
JOHCM UK Equity Income
The term soft-closure is extremely vague, with some experts claiming that it already applies to the £2.5bn JOHCM UK Equity Income fund because the group has stopped actively marketing it.
The fund’s very strong performance and the reputation of Clive Beagles in particular have resulted in inflows of more than £700m over the past 12 months alone.
Although Beagles has himself insisted that he doesn’t want any more inflows as the fund is approaching full capacity, it can still be bought at no extra cost across all major platforms.
An FE Trustnet article back in November 2013 pointed out that JOHCM’s original prospectus said it would close its doors to new investors when it reached £1bn.
The fund closed temporarily at around £800m, but opened shortly after and has been available to investors ever since.
Beagles and co-manager James Lowen have recently upped their exposure to large caps in favour of mid caps, though the pair insist this is on valuation rather than liquidity grounds.
Investment manager at Equilibrium Asset Management Mike Deverell thinks – and indeed hopes – it won’t be long until it closes its doors.
“From an administration point of view, soft-closures are a real pain, but there are some that should be closing,” he said.
“JOHCM falls into this category.”
“When you go close or even beyond a said limit, the alarm bell rings. They’ve upped their exposure to large caps, which they may say is because this is where the value is; however, what happens if small and mid caps once again become attractive?”
Regardless of the issue over size, experts are in agreement that Beagles and co-manager James Lowen are among the best equity income investors in the UK.
The fund is one of the best performers in the UK Equity Income sector over three and five years, which has been as a result of Beagles and Lowen’s effective stock picking – particularly in the mid cap market.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
The fund’s growing size certainly hasn’t affected the managers yet: our data shows it is also a top-quartile performer over a one-year period, with returns of 24.27 per cent.
The four crown-rated fund, which is a member of the FE Select 100, has ongoing charges of 1.3 per cent, but also charges a performance fee.
Unicorn UK Income
The exit of Neil Woodford from Invesco Perpetual has prompted strong inflows into a number of equity income funds, including FE Alpha Manager John McClure’s Unicorn UK Income portfolio.
The small cap focused fund is a very different beast to Invesco Perpetual Income and High Income, but its strong performance in recent years has ensured that its size has ballooned regardless.
FE inflows data shows that Unicorn UK Income has grown from just £39m to more than £600m in the space of two years.
Historically, McClure has invested exclusively in small and mid caps, and as long as his process stays the same, the fund’s capacity should be much smaller than a traditional large cap one.
As a point of reference, Gervais Williams’ CF Miton UK Multi Cap Income fund recently closed to new investors at around £200m.
Deverell says McClure’s fund is another that he hopes will soon close its doors.
“I wouldn’t be surprised if Unicorn was closed soon,” he said.
“Investing in small caps always means there is a limited number of stocks you can hold and a limited amount of money you can invest.”
“I think you should always be wary of any small cap fund that is around the £1bn mark, and this isn’t a long way from that now.”
Unicorn UK Income is the best performer in the entire IMA UK Equity Income sector over three and five years, with returns of 76.99 and 310.44 per cent, respectively.
It is also a top-10 performer over a one-year period.
Source: FE Analytics
Again, Unicorn UK Income is a member of the FE Select 100.
The FE Research team says the only way McClure will be able to run a fund much bigger than it is today would be if he started significantly buying into large caps, which could jeopardise his very successful strategy.
The five crown-rated fund has ongoing charges of 1.57 per cent and is currently yielding 2.86 per cent.
Cazenove UK Opportunities
FE Trustnet was told in May last year that FE Alpha Manager Julie Dean’s UK equity strategy was approaching capacity and would soon be closed to new money.
At the time, the Cazenove UK Opps and UK Equity funds had combined AUM of 2.5bn.
Since then Cazenove has been taken over by Schroders, and although assets have grown to more than £3.5bn, it remains open at no extra cost across all major platforms.
FE data shows that Cazenove UK Opps has in its own right been the fourth best-selling fund in the UK All Companies sector of the last year, with inflows of just under £800m.
Dean uses a business cycle approach to investing, operating with a high turnover in order to capture stocks that are best positioned to benefit.
Shauna Bevan, FE AFI panellist and fund of funds manager at Charles Stanley, believes that the fund is close to reaching full capacity.
“I wouldn’t like to put a timescale on it but certainly the small and mid cap exposure will become constrained if the fund gets any bigger,” she said.
Aside from a relatively disappointing six months or so, Dean’s fund has been one of the standout performers in its sector recently, achieving top-decile returns over three, five and 10 years.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
Dean’s fund has ongoing charges of 1.56 per cent.
It has five FE Crowns and is another member of the FE Select 100.
Templeton Frontier Markets
Unlike their more established emerging market rivals, frontier markets have had a very good time of late: our data shows the MSCI FM index is up 30.83 per cent over the past two years, compared with losses of 8.78 per cent from the MSCI EM index.
The highest profile and most popular fund that invests in this area is Mark Mobius’ $2.2bn five crown-rated Templeton Frontier Markets portfolio, even though it has underperformed versus its benchmark over the past year or so.
The manager announced in May last year that the fund was soft-closed, but it remains available to investors without an additional entry charge across a number of platforms.
“There’s the same issue with a fund such as this as with a small or mid cap fund,” said Deverell.
“There is a greater pool of companies to choose from because there are so many countries in the index, but the companies are illiquid.”
“It’s up to the manager when the fund is closed, but you would think it will be sooner rather than later,” he added.
Templeton Frontier Markets has ongoing charges of 2.56 per cent.
Baillie Gifford Japanese Smaller Companies
Deverell says that a meeting he had with the Japanese team at Baillie Gifford makes him think that its top-performing small cap fund could be closed to new investors before long.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
“We asked them outright whether as a team they would rather invest in the Japan or Japan small cap fund, and they said the larger cap fund because they had more flexibility in picking stocks,” he said.
“To me, this signals that action could be taken shortly.”
Baillie Gifford Japanese Smaller Companies has ongoing charges of 1.56 per cent.
It is £176m in size, making it one of the largest in the illiquid IMA Japanese Smaller Companies sector.
