While past performance is by no means a guide to the future, funds that have performed well inevitably attract attention from investors. Some funds – namely those that invest in high grade bonds or large cap equities – can handle billions of pounds, but others struggle.
This is a particular problem for small cap managers, who need maximum flexibility to invest in illiquid stocks down the market cap spectrum. In the last 12 months a number of small cap vehicles have soft- or hard-closed, including the likes of Fidelity UK Smaller Companies and Cazenove UK Smaller Companies, and experts are tipping others to soon follow.
The multi cap income story has been very popular over the last two years or so, with Unicorn UK Income, CF Miton UK Multi Cap Income and Marlborough UK Multi Cap Income receiving the bulk of inflows. Gervais Williams’ £400m Miton fund has already closed to new money, and the ballooning size of John McClure’s now £600m Unicorn fund has led experts to predict this will soon follow suit.
Both are top performers in their IMA UK Equity Income sector in recent years, with returns of 70 per cent apiece over a two-year period.
Performance of fund, sector and index over 2yrs
Source: FE Analytics
While there are no other income-focused open-ended funds run by McClure and Williams, it’s possible to get exposure to the managers if you are prepared to invest in a growth fund.
CF Miton UK Smaller Companies
Just over a year after Williams launched the CF Miton UK Multi Cap Income fund in October 2011, the CF Miton UK Smaller Companies fund was brought to market. So far it has easily outperformed its income-focused counterpart, with returns of 78.16 per cent in little over one year.
Performance of funds, sector and index since Dec 2012
Source: FE Analytics
It has significantly outperformed its IMA UK Smaller Companies sector average and the Numis Smaller Companies (ex IT) index over the period, though it has been more volatile in the process.
Patrick Connolly, head of communications at Chase de Vere, says he has been buying the fund for his personal ISA portfolio this year.
“I’ve been buying regular premiums for two funds in my ISA since January, both that are very small and not big enough to be recommended by Chase de Vere,” he said.
“I’m wary of mid caps but I think there are still opportunities for small cap managers to pick up tomorrow’s winners. Gervais Williams (pictured) is a very experienced manager, especially in the smaller part of the market.”
The other fund Connolly has been buying into is the £28m Somerset Global Emerging Markets portfolio, headed up by Edward Robertson. With only £58.6m under management, Williams' fund has a huge degree of capacity left, considering Miton only discussed the possibility of a closure for its income fund when assets hit £200m. For those wary of the growing size of CF Miton UK Multi Cap Income, the manager’s nimbler alternative is perhaps an even more attractive option.
There is some overlap between the portfolios, with software company Quindell a top-10 holding in both. However, the lack of yield target allows Williams to pick any company he wishes. Among his biggest bets at the moment are FTSE AIM tech company Seeing Machines and LED specialist Dialight. Tech is a significant theme throughout the fund.
CF Miton UK Smaller Companies has clean share class ongoing charges of 1.12 per cent and is available on the Trustnet Direct platform.
Investors wishing to stay with the income theme may also be tempted by Williams’ £270m Diverse Income Trust – a closed-ended version of CF Miton UK Multi Cap Income.
Performance of fund and trust since Oct 2011
Source: FE Analytics
Gearing and a narrowing discount have seen the trust significantly outperform the fund since the latter’s launch. The trust is currently on a 5.6 per cent premium, which is expensive compared with its one-year average.
Unicorn UK Smaller Companies
While McClure is a big proponent of investing in dividend-paying small caps, he also runs a very successful growth-focused fund with co-manager Simon Moon.
FE data shows Unicorn UK Smaller Companies has outperformed its IMA UK Smaller Companies and Numis Smaller Companies (ex IT) benchmark over one, three and five years. A poor period between 2007 and 2008 means it is behind the index over the last decade, though.
Source: FE Analytics
It’s failed to keep up with Unicorn UK Income over three and five years, but has had a much better 12 months.
The £80m Unicorn UK Smaller Companies fund has less in mid caps than its income-focused counterpart, and is therefore a purer small cap play. It has a number of micro cap companies in its top-10, including construction companies Tyman and Low & Bonar, which both have a market cap of under £500m.
McClure is currently very bullish on the prospect of UK small caps, believing that the next three years could be as good as the last.
Unicorn UK Smaller Companies has clean share class ongoing charges of 1.61 per cent, and is available on Trustnet Direct.
Again, it is possible to get exposure to McClure’s skill as an income manager via an investment trust – Acorn Income IT. The £57m trust has again outperformed its open-ended equivalent, and is on a slight premium.
Performance of fund and trust over 5yrs
Source: FE Analytics
A sizeable portion of the trust’s assets are invested in fixed income, which is managed separately by Paul Smith. This exposure is currently at around 18 per cent.
McClure also co-manages the top-performing Unicorn Free Spirit and Unicorn Outstanding British Companies funds, but both have a much larger cap focus than Unicorn UK Income.