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Mark Harris: The nimble fund I’m backing to shoot the lights out

The manager of City Financial’s fund-of-funds range says that a small portfolio is an investor’s best bet in a fast-rising market.

Alex Paget

By Alex Paget, Reporter, FE Trustnet
Wednesday July 24, 2013

Franklin UK Smaller Companies is the ideal fund to play the UK recovery, according to Mark Harris (pictured), who has recently started buying it across his multi-manager portfolios.

ALT_TAG Harris, who heads up City Financial’s fund of funds range, says he is becoming more bullish on UK equities due to improving economic data and told FE Trustnet he is using the undervalued small cap market to play this theme.

The manager chose the Franklin portfolio because it is smaller than the vast majority of its rivals and because the new management team – Richard Bullas and FE Alpha Manager Paul Spencer – have injected the fund with a new lease of life.

"From a top-down perspective, I am pretty happy with the UK equity market as the economy seems to be improving," Harris said.

"To play the UK side of things I am using small caps and the fund I really like at the moment is Richard Bullas’s Franklin UK Smaller Companies. It has had an exceptional period and it is a shame I didn’t buy it earlier, but I wanted to see that they could turn the fund around and that they were happy with its structure."

Spencer and Bullas took over the £30m Franklin UK Smaller Companies fund from the long-serving Stuart Sharp in June 2012.

The fund had struggled under Sharp, which is evident from its position in the bottom quartile of the IMA UK Smaller Companies sector over three, five and 10 years. However, that is starting to change.

According to FE Analytics, Franklin UK Smaller Companies has been the fourth-best performing fund in the sector over one year, with returns of 46.97 per cent, beating its benchmark – the NUMIS Smaller Companies ex IT index – which has returned 42.55 per cent.

Performance of fund vs sector and index over 1yr


Source: FE Analytics

Bullas recently told FE Trustnet that the fund had undergone a "brutal" restructuring since he and Spencer took it over this time last year.

In the first few months, they removed 33 of the 59 holdings they inherited, with the axe falling hardest on illiquid micro-caps. The duo are now concentrating on higher-quality companies with a market cap ranging from £100m to £1bn.

Bullas and Spencer also eradicated out-of-favour mining stocks and opted for a highly concentrated mix of growth and value companies in an effort to turn around the performance of the fund.

Although Harris admits that one year’s performance is too short a timeframe to judge whether a fund is back on track, he is confident in Bullas and Spencer’s abilities.

"I have met with Richard Bullas several times and they have a nice stock-specific approach and good sector weightings," Harris said. "I think those attributes should help the fund going forward. He also has the help of Paul Spencer, who is a very experienced manager."

The duo run a high-conviction portfolio of just 40 stocks and the fund is almost fully invested.

Their largest sector weighting is to industrials, making up 38.22 per cent of the portfolio. Bullas and Spencer’s largest individual holdings are printhead producer XAAR, retailer Topps Tiles and manufacturer Avon Rubber.

Harris does not just hold the fund for the management team’s stockpicking abilities and sector weightings: he also says the fact that it has just £30m worth of assets under management makes it more nimble than its rivals.

Issues surrounding fund capacity in the small cap sector have been prominent during 2013, following FE Alpha Manager Alex Wright's decision to soft-close his top-performing Fidelity UK Smaller Companies fund at just £250m.

Harris says that a small fund is an investor’s best bet for a rising market.

"The main reason for buying this fund is that, in general, the UK's prospects are improving," he said.

"Small and mid caps are not only really attractively valued, but the market is not factoring in improving trading conditions. I had held Cazenove UK Smaller Companies in the past and Paul Marriage has done a fantastic job."

"However, I like the Franklin fund because it is slightly smaller and a bit more nimble. There are improving trading conditions and the lower end of the market is often overlooked and under-brokered, so I think a smaller fund is the best option," Harris added.

Franklin UK Smaller Companies has an ongoing charges figure (OCF) of 1.7 per cent and requires a minimum investment of £1,000.

Harris began running funds at City Financial in January 2013, having previously managed funds of funds at New Star and Henderson Global Investors.

His City Financial Diversified fund has been his best performer since the start of the year. Our data shows it is the third-best performing fund in the IMA Mixed Investment 0%-35% Shares sector year-to-date, with returns of 6.88 per cent.

Performance of fund vs sector since Jan 2013


Source: FE Analytics

City Financial Diversified has an OCF of 2.51 per cent and requires a minimum investment of £1,000.

This article is for professional investors only. You will be redirected to the News & Research homepage in seconds. If you are having problems getting to the page, please click here
Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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