Investors have dropped risk assets since the start of September after becoming concerned by the prospect of quantitative easing’s end in the US, slowing global growth expectations, the threat of recession and deflation in the eurozone, geo-political tensions in the Middle East and the spread of Ebola in west Africa.
FE Analytics shows the FTSE All Share is down 8.55 per cent since 4 September, while the average fund in the IMA UK Smaller Companies sector has performed a little better and lost 7.90 per cent.
Performance of indices since 4 Sep
Source: FE Analytics
Within these smaller companies portfolios, examples can be found of highly regarded and popular funds that have managed to avoid losing as much at the wider index and their peers by a decent margin.
The PFS Downing Active Management fund is a relatively unknown member of the IMA UK Smaller Companies sector, with assets under management of just £8.6m.
It has fallen just 4.85 per cent since the sell-off started, sticking by its stated aim of generating capital growth through smaller companies “whilst retaining a strong focus on capital preservation”.
Performance of fund vs sector since 4 Sep
Source: FE Analytics
The five FE Crown-rated fund has underperformed the sector since launch in September 2008, returning just 38.53 per cent - which is 50 percentage points short of its average peer’s rise.
However, since currency manager Judith MacKenzie took over in February 2011 it has been the ninth best performing fund in the sector with a 58.93 per cent gain.
This has seen it achieve top quartile performance over one and three years.
PFS Downing Active Management has a relatively high clean ongoing charges figure (OCF) of 1.68 per cent.
One popular small-cap fund has held up well in the sell-off is FE Alpha Manager Giles Hargreave and Eustace Santa Barbara’s £806.6m Marlborough Special Situations fund.
It has lost 5.27 per cent since 4 September, maintaining its first quartile performance of the past three and six months as well as over one year.
It is third quartile over three years after underperforming the average by 2.73 percentage points but sits in the first quartile over five years.
Performance of fund vs sector since 4 Sep
Source: FE Analytics
Marlborough Special Situations appears on the FE Research team’s Select 100 list of recommended funds, winning its place thanks to Hargreave’s “excellent track record”. The manager’s desire to protect investors’ capital is also noted.
“Performance remains dependent on the movement of the smaller companies market as a whole. Hence investors must be aware that it may gain or lose as much as 10 per cent in a month,” FE Research said.
“As the manager is cautious in his investment approach, however, the risk remains limited compared with the fund’s peers.”
Marlborough Special Situations has a clean OCF of 0.80 per cent.
The five FE Crown-rated Hermes UK Small & Mid Cap Companies fund has lost 8.86 per cent since the sell-off started, making it the third best performing smaller cap portfolio over this time.
The fund, which is managed by John Leahy and David Stormont, sits in the sector’s first quartile over one year as well as over three and six months.
The managers have run Hermes’ UK smaller company strategy since July 2007, over which time it has returned 11.55 per cent against the benchmark’s 7.50 per cent.
Its largest sector overweight is to industrials and financials, with the biggest individual positions being football centre manager Goals Soccer Centres, equipment rental company Ashtead, automotive retail and services company Inchcape, specialist insurer Beazley and buy to let lender Paragon.
Performance of fund vs sector since 4 Sep
Source: FE Analytics
Hermes UK Small and Mid Cap Companies has an OCF of 0.85 per cent.
Of course, UK small and mid-caps have had a tough time of it in 2014 with many being hit by a significant sell-off at the start of the year after investors took profit and rotated back towards large-cap stocks.
The average fund in the IMA UK Smaller Companies sector is down 7.79 per cent over the year to date, compared with a 4.54 per cent fall that has been seen in the FTSE All Share over the same time frame.
However, all three funds have managed to outperform their peer group average over the year. The PFS Downing Active Management fund is the strongest performer with a gain of 11.90 per cent.
The other two have fared less well with both losing money. Marlborough Special Situations is down 2.35 per cent over 2014 so far while Hermes UK Small and Mid Cap Companies has lost 3.40 per cent.
