The £1.4bn fund had a tough time between 2007 and 2012, falling short of its FTSE 250 (ex IT) index benchmark every calendar year over the period.
This has resulted in it underperforming on a cumulative basis over three-, five- and 10-year periods. However Brough (pictured), an FE Alpha Manager who heads up a number of small and mid cap portfolios at Schroders, says he is confident the fund will return to the kind of performance that saw it shoot to the top of the sales charts in the mid-2000s.
"We have gone back to basics with the fund," he said. "At the start of the year we reduced the holdings from 78 to 52 and concentrated the top-10 stocks to more than 40 per cent of the fund."
"As a result, the fund is up 19.99 per cent year to date and ahead of its benchmark."
"Over a one-year period the fund has returned 51.48 per cent compared with 44.58 per cent from its benchmark."
Performance of fund vs sector and index over 1yr
Source: FE Analytics
Brough says he is positive in his outlook for mid caps in spite of their recent strong performance, and that he is confident that his fund will build on its strong 12-month run.
"We still think there are meaningful opportunities for investors in UK mid caps. With this in mind we definitely believe the fund can, and will, return to the levels of outperformance seen in the first six years of its existence," said Brough.
"It should not be forgotten that since launch the fund has returned 287.71 per cent to investors compared with the sector average of 88.18 per cent."
Performance of fund vs sector and index since launch
Source: FE Analytics
The fund’s FTSE 250 (ex IT) index benchmark has delivered just over 300 per cent since tits launch in October 1999, meaning it has slightly underperformed.
Among Brough’s largest holdings are Sports Direct and property businesses Grainger and Bovis Homes Group. These three companies, which have a combined weighting of 15 per cent in the portfolio, are all up between 80 and 100 per cent over the last 12 months.
Top-10 holdings of fund as of 1 May 2013
| Rank | Name | Weighting (%) | 1yr return (%) |
|---|---|---|---|
| 1 | Sports Direct | 6.87 | 80.59 |
| 2 | CSR | 5.49 | 172.86 |
| 3 | Grainger | 4.1 | 83.83 |
| 4 | Atkins | 3.86 | 40.98 |
| 5 | Bovis Homes Group | 3.84 | 94.31 |
| 6 | Victrex | 3.75 | 27.95 |
| 7 | Pace | 3.47 | 183.9 |
| 8 | Premier Oil | 3.46 | 9.45 |
| 9 | Daily Mail & General Trust | 3.39 | 16.58 |
| 10 | Millenium & Copthorne Hotels | 3.3 | 24.33 |
Source: FE Analytics
The poor performance of the Schroders fund resulted in heavy outflows during the late 2000s, with assets under management (AUM) falling from a high of £3bn to £1.4bn at the time of writing.
In a previous interview with FE Trustnet, Rowan Dartington’s Tim Cockerill pointed to the vast size of the fund as a possible reason for the underperformance, as it impacted the manager’s ability to invest flexibly throughout the FTSE 250 index.
Brough did not confirm that the smaller size of the fund has made it easier for him to adopt a higher-conviction style, but Cockerill (pictured) believes it has had a noticeable effect.
The head of investments says he continues to prefer Franklin UK Mid Cap over Brough’s fund, but that he is keeping a watchful eye on its progress. "Is it back on my radar? I’d say it’s on the edge of my radar," Cockerill explained.
"It’s really good to see that the manager is doing well again, because this fund was the first one of its kind to do well and gain traction. It had a great start but it struggled for a long period of time."
"At one point it was underperforming the HSBC mid cap tracker, and when that happens you know that the revamp was an important thing to do."
"So far, the change in style has been a positive move, but from my point of view I need to see the fund perform like this for a longer period, in comparison to Franklin UK Mid Cap."
With returns of 42.36 per cent over the past 12 months, FE Alpha Manager Paul Spencer’s Franklin fund has fallen short of Brough’s vehicle, and its benchmark.
However, it has a far superior record over three, five and 10 years.
Performance of funds vs sector and index over 10yrs
Source: FE Analytics
"What I want to see from any fund that I’m invested in is consistency, and I haven’t seen that from Schroder UK Mid 250 yet," Cockerill continued.
"Maybe it’s now turned the corner, but maybe not. We’ll certainly be keeping an eye on it," he finished.
Schroder UK Mid 250 requires a minimum investment of £1,000 and has an ongoing charges figure (OCF) of 1.66 per cent.
The £780m Franklin fund also requires a minimum investment of £1,000, but is slightly cheaper, with an OCF of 1.58 per cent.
