Skip to the content

The UK small-cap funds sitting bottom decile for (almost every) metric you can think of

22 July 2016

After looking at some of the IA UK Smaller Companies funds that have consistently outperformed their peers over recent years, we highlight those that have found themselves at the bottom of the performance and risk tables.

By Gary Jackson,

Editor, FE Trustnet

While active UK smaller companies funds have tended to be a good hunting ground for investors over the years, a handful of products managed by the likes of M&G, Halifax and Webb Capital are sitting towards the bottom end of the sector on a range of risk and return metric.

In a series of articles, we have been highlighting the funds have the highest decile rankings for the cumulative five-year returns up to the end of 2015 as well as the annual returns of 2015, 2014 and 2013, annualised volatility, maximum drawdown, downside capture, alpha generation, Sharpe ratio and upside capture.

After these 10 decile rankings are added together make a total score, a ‘10’ shows a fund has been first decile in each metric and a ‘100’ indicates 10th decile performance in each. This methodology has now been applied to the IA UK Smaller Companies sector.

We recently revealed the best performers in the sector, with the list being topped by the likes of AXA Framlington UK Smaller Companies, Liontrust UK Smaller Companies and Fidelity UK Smaller Companies.

FE Analytics shows that the IA UK Smaller Companies sector has been a decent place to invest over the past 20 years, taken on average. The typical small-cap fund has made a 448.61 per cent total return over the last two decades, outperforming the FTSE Small Cap index and the FTSE All Share.

Performance of sector vs indices over 20yrs

 

Source: FE Analytics

As the graph above shows, the average fund has lagged the Numis Smaller Companies ex Investment Companies index over this time (which is a common benchmark in the sector and the one used in this study). However, it must be noted that this index has a large weighting to mid-caps.


Within the sector there is a wide divergence in returns delivered by the best and worst performers. Looking over the five years covered by this study (1 January 2011 to 31 December 2015), the best performing fund made a 154.70 per cent total return while the worst performer was down 67.78 per cent.

The table below reveals the 15 UK smaller companies funds with the highest scores in our study, which shows they have consistently been in the lower deciles of the peer group for the 10 metrics examined.

 

Source: FE Analytics

Topping the table with a score of 100 is SF Webb Capital Smaller Companies Growth, which has been headed up by Peter Webb since May 2012 (prior to this it had managed by Tom Winnifrith since 2007).

This £1.2m fund is the one that made a 67.78 per cent loss over the five-year period this study analyses and it is in the bottom decile for every metric looked at – its maximum drawdown, for example, has been an eye-watering 70.75 per cent.


Performance of fund over 5yrs to 31 Dec 2015

 

Source: FE Analytics

Webb had a strong track record of small-cap investing in the 1990s and early 2000s. Webb Capital took over the fund from its managers when owner The Share Centre stripped Winnifrith’s Rivington Street Holdings of management responsibilities after a period of poor performance.

At the time, Webb said the fund should have been described as a special situations fund following the falls that had taken place in some of its holdings. The current portfolio has almost 80 per cent of assets in AIM stocks, with top holdings including Lighthouse Group, TLA Worldwide and Galasys.

The fund in second place has a much better score than SF Webb Capital Smaller Companies Growth, as Halifax Smaller Companies comes out with 83. Its five-year total return of 63.08 per cent puts it in the sector’s ninth decile but it is in the bottom decile when it comes to alpha generation, downside capture and Sharpe ratio.

The £163.1m portfolio is overweight the industrials sector with a 38.9 per cent allocation and, to a much smaller extent, consumer services at 13.3 per cent; it is underweight all other sectors. It counts RPC Group as its top holding, followed by XP Power and Dechra Pharmaceuticals.

Other funds making some of the sector’s lowest returns (although they have all made gains of 50 per cent or more) include Jupiter UK Smaller Companies, Henderson UK & Irish Smaller Companies and Franklin UK Smaller Companies.

FE Trustnet Registration

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo 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.