While the most ardent investors scan the entire market for their choices, in the mainstream those belonging to the largest institutions with the biggest marketing budgets attract the most attention.
This of course has its benefits; small funds remain flexible, giving their managers the best possible chance of repeating stellar performance. On the negative side, however, many go under the radar of investors and advisers, meaning they are denied access to some of the leading managers in the industry.
Indeed, the limitations of platforms mean that you can’t get access to these hidden gems even if you wanted to.
Below are five funds which we believe don’t get the credit – in terms of both inflows and news coverage – that they deserve.
Unicorn Mastertrust
The advantages of investment trusts are well documented, but they are often the remit of more sophisticated investors who understand the intricacies of premiums, discounts and bid-offer spreads.
This makes a strong case for an open-ended fund of investment trusts, of which there are a handful in the IMA universe. Without doubt the standout performer is former FE Alpha Manager Peter Walls’ Unicorn Mastertrust, which is a top decile performer in its IMA Flexible Investment sector over three, five and 10-year periods.
A classic value investor, Walls only invests in trusts that are on a discount, leading him to invest in out-of-favour portfolios with the potential for significant upside.
Considered by many as one of the best investors in closed-ended funds in the UK, his stock-picking has been rewarded with returns in excess of 127 per cent over the past decade. This compares to 88.19 per cent from the IMA Flexible Investment sector average and 113.86 per cent from the FTSE All Share.
Source: FE Analytics
Walls’ obsession with finding value has led him to build up cash when markets are expensive, helping him to protect against the downside. He recently put cash to work during the autumn correction, though he is still sitting on around 6 per cent. Top-10 positions currently include Caledonia IT, Fidelity Asian Values and Templeton Emerging Markets.
In spite of Mastertrust’s stellar performance, and its inclusion on a number of the UK’s biggest platforms, it’s just £22m in size.
While demand for funds of investment trusts is limited, Unicorn’s boutique status and its decision not to market it has certainly contributed to poor sales. Moreover, Walls’ temporary expulsion from management in 2008 under former chief executive Peter Webb hasn’t helped matters.
Still, given the fund’s stellar long-term performance, stringent bottom-up process and the experience of Walls, this is one that arguably deserves more recognition. It has ongoing charges of 0.98 per cent, and unlike many closed-ended portfolios doesn’t have a performance fee.
Marlborough UK Multi-Cap Growth
As well as not being heavily marketed, the £87m Marlborough UK Multi-Cap Growth fund has suffered from being in the shadow of higher profile portfolios managed by the same firm.
When investors think of Marlborough most think of FE Alpha Manager Giles Hargreave – one of the most respected UK small cap managers on the planet. His Marlborough Special Situations, UK Micro Cap Growth, Multi Cap Income and Nano Cap Growth funds are hugely popular, in spite of their boutique status.
Marlborough UK Multi-Cap Growth has largely been forgotten, seemingly ignored because it isn’t an out-and-out small cap portfolio and doesn’t have an income focus. It was run by Hargreave between 2001 and 2014, but even his name failed to bring in the inflows.
Now headed up by fellow FE Alpha Manager Richard Hallett, who has been a co-manager since 2005, the fund has delivered top quartile returns in the 273-strong UK All Companies sector over three, five and 10-year periods. It has made 185.82 per cent over the past decade, beating its benchmark by more than 75 percentage points.
Performance of fund and sector over 10yrs
Source: FE Analytics
As its name suggests, Marlborough UK Multi-Cap Growth is one of the few UK All Companies funds that genuinely invests across the market cap spectrum. Hallett has around 40 per cent in large caps, defined as those with a market cap of more than £5bn, while small and mid-caps make up the rest. Top-10 positions include FTSE AIM online retailer ASOS, FTSE 250 retailer Halfords and FTSE 100 life insurance company Prudential.
It has ongoing charges of 0.85 per cent.
Ecclesiastical Higher Income
At £289m the Ecclesiastical Higher Income fund is by no means small, but its 20 year-plus record of delivering high and stable levels of income and growth deserves much more recognition.
Headed up by FE Alpha Manager Robin Hepworth, it previously sat in the little used IMA UK Equity & Bond sector, but has since moved into the more popular IMA Mixed Investment 40-85% sector.
FE data shows the fund has delivered top decile returns of 136 per cent over the past decade and is also ahead of its peers over one, three and five years. It has also consistently performed with less volatility than both its sector and FTSE All Share index, protecting very effectively against the downside in both 2008 and 2011.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
Ecclesiastical Higher Income is a very simple portfolio, investing only in equities, bonds and cash. Equities currently have a 64 per cent weighting, while bonds and cash have 29 and 7 per cent respectively. Hepworth tends to prefer defensive blue chip companies such as GlaxoSmithKline and Orange. Most of the fund is invested in UK-listed stocks.
While many investors in the fund use the accumulation share class, the manager’s principal concern is generating a high level of income, making it popular with those who rely on dividends in retirement.
The fund is currently yielding a healthy 4.12 per cent, and scores a strong 87 out of 100 for dividend stability over three years, according to FE Research. FE data shows it has paid more than £5,871 in dividends over the past decade from an initial £10,000 investment – one of the highest payouts in the sector.
Unlike monthly dividend-paying rivals such as Invesco Perpetual Distribution and Jupiter Distribution, the fund only pays out twice a year, in January and June. It has ongoing charges of 0.83 per cent.
McInroy & Wood Smaller Companies
This is a particularly extreme case in that Tim Wood’s fund is by far the best performing global small cap option in the UK market, yet only has £59m under management.
The reason? McInroy & Wood is a private client business and does not market itself in any way. It has a steep minimum investment of £10,000 and is only available on a select few platforms. However, if you’ve got the money, this is an exceptional performer with a proven process.
FE data shows McInroy & Wood Smaller Companies is the second best performing fund in the entire IMA Global sector over 10 years, and top quartile over three and five years as well. It spite of its small cap focus, it is only marginally more volatile than its peers over the period.
Performance of fund and sector over 10yrs
Source: FE Analytics
Wood is benchmark unaware, running a highly concentrated portfolio. The US, UK and continental Europe make up around 30 per cent apiece, though the fund has next to nothing in emerging markets.
It has ongoing charges of 1.2 per cent.
FP Matterley Regular High Income
Last but not least is FE Alpha Manager Chris Evans’ FP Matterley Regular High Income fund, which has been one of the standout performers in the IMA Mixed Investment 0-35% sector since its launch in March 2006 from both a total return and income point of view.
FE data shows it boasts top quartile returns over three and five years, as well as since launch, generating dividends worth over £4,302.67 from an initial £10,000 investment – the highest sum of any fund in the sector with a long enough track record.
Income earned from initial £10,000 investment since launch
Source: FE Analytics
FP Matterley Regular High Income is a lower risk version of the Ecclesiastical fund, investing a maximum of 35 per cent in equities. Evans is currently maxing out his equity exposure, with bonds making up a further 62 per cent and cash 2 per cent. Again, large established companies are preferred, with the manager investing predominantly in the UK.
Dividends are paid quarterly and ongoing charges are 0.84 per cent. The fund is currently yielding 3.72 per cent.
Which funds are frustratingly out of reach on the platforms you use? Are you tempted to change your provider as a result? Tell us in the comments section below.
