FE Alpha Managers stand head and shoulders above the competition in the UK Smaller Companies sector, the latest FE Trustnet study shows.

Investors who had backed the likes of Giles Hargreave, Philip Rodrigs and Daniel Nickols over the medium- and long-term would now be on the right side of a significant gulf in returns between this elite group and the rest of the market.

Data from FE Analytics shows that Nickols has the best record over the long-term. His two funds - Old Mutual Dublin UK Select Smaller Companies and Old Mutual UK Select Smaller Companies - have returned 360.72 per cent and 259.86 per cent respectively over the last decade.

The average fund in the sector has returned 109.99 per cent during this time.

The Old Mutual Dublin UK Select Smaller Companies fund has an initial investment of £1,000 and a TER of 1.94 per cent.

Performance of funds vs sector over 10-yrs



Source: FE Analytics

Giles Hargreave has the best record over the medium-term. His Marlborough UK Micro Cap Growth fund has outstripped all others over five years with a return of 36.74 per cent.

Marlborough Special Situations, also managed by Hargreave, has returned 21.02 per cent over the period.

The Micro Cap fund also has the fourth-lowest annual volatility score in IMA UK Smaller Companies over five years.

In terms of consistency the Liontrust UK Smaller Companies fund has proved its worth across a variety of market conditions. FE Alpha Managers Anthony Cross and Julian Fosh have achieved first- or second-decile returns over one, three, five and 10 years.

Fellow FE Alpha Manager Paul Marriage’s Cazenove UK Smaller Companies fund has an equally strong record.

Back in February, Marriage told FE Trustnet that he was unconcerned about lagging the market year-to-date, because his focus is on long-term stability rather than short-term bursts. 

Following the market correction in April and May, the fund now tops its sector year-to-date with returns of 12.37 per cent.

Performance of funds vs sector over 5-yrs



Source: FE Analytics

The study's findings suggest that having the expertise of a top-quality manager in the UK Smaller Companies space is more important than in other areas of the market.

"Larger companies, particularly those in the FTSE 100, have analysts pouring over every detail of a company’s accounts and the market is very efficient at reflecting what they find," said Hargreaves Lansdown’s Richard Troue.

"Managers willing to put the effort into looking into a huge universe of stocks at the smaller end of the spectrum have a real opportunity to find undervalued companies."

He added: "Experienced managers like Hargreave, Marriage and Nicholas really have their finger on the pulse when it comes to spotting the FTSE 250 companies of tomorrow. They have built up a wealth of contacts and tried and tested methods of bringing attractive long-term returns."

A recent FE Trustnet study highlighted that UK small cap funds are less volatile than the majority of investors give them credit for. 

The best rated managers also provide investors an edge in managing risk. The four least volatile funds in the UK Smaller Companies sector over the last five years are all headed up by FE Alpha Managers.