Two funds in the IA UK Smaller Companies sector have returned more than 200 per cent over the past five years, while two have failed to break three figures at all, according to research from FE Trustnet.
Having looked at which geographical location has been the best for smaller company performance over the past five years, FE Trustnet has broken down each region to find out how funds have performed. This week we look at the IA UK Smaller Companies sector.
UK smaller companies funds have been among the better performers globally over the last five years, as previously found, returning 119.96 per cent over the last half-decade.
Performance of sector over 5yrs
Source: FE Analytics
Of the 43 eligible funds in the sector, 15 have underperformed the Numis Smaller Companies ex IT index, while the sector has underperformed the benchmark overall by 51 basis points.
However, against their large cap-focused peers, smaller companies funds are materially ahead. Analysts have not been surprised by this turn of events, highlighting the inclusion of passive funds and ‘closet trackers’ in the larger IA UK All Companies sector as one reason for large-cap fund sector underperformance.
The IA UK Smaller Companies sector does not contain any passive or closet tracker funds.
Premier Asset Management portfolio manager Simon Evan-Cook said: “One of the things I love about small-cap investing is that the indices are very well-diversified in respect of stocks and sectors – not something that could be said of the FTSE 100.
“So most UK Small Cap funds are genuinely active. Even just the absence of those closet trackers may be enough to give them an advantage over their multi-cap peers.”
Old Mutual UK Smaller Companies Focus and R&M UK Equity Smaller Companies have been the top performers in the sector while Henderson UK & Irish Smaller Companies and FP Octopus UK Micro Cap Growth have lagged.
The five crown-rated Old Mutual UK Smaller Companies Focus run by Nick Williamson has returned 234.25 per cent over the last five years: almost double the sector average of 119.96 per cent.
Companies the fund invests in must have a market capitalisation no greater than the largest company in the Numis Smaller Companies Index at the time of initial investment meaning it can buy into some mid-cap companies as well.
The largest holding in the fund is drinks brand Fevertree Drinks (4.9 per cent), which since its launch in November 2014 has risen by an impressive 874.71 per cent.
The manager took over the fund in January 2016 from Daniel Nickols and since then it has been the top performing fund in the sector, returning 61.07 per cent versus the sector average 24.13 per cent.
The concentrated, £189m fund, which is made up of 60 holdings, has a clean ongoing charges figure (OCF) of 0.88 per cent.
Best and Worst performers in the IA UK Smaller Companies sector over 5yrs
Source: FE Analytics
The other fund returning more than 200 per cent is FE Alpha Manager Philip Rodrigs’ £806m R&M UK Equity Smaller Companies though it is worth noting that it has now soft-closed.
The three crown-rated fund has returned 226.26 per cent over the last five years, though since Rodrigs took over from previous manager Daniel Hanbury, the fund dips into the second quartile, slightly ahead of the sector average.
In its latest research note, Square Mile Research said: “Underpinning this fund's investment process is a robust, quantitively-based proprietary screen that provides welcome assistance in sifting through what is a large universe of potential ideas.
“However, this this can only get you so far and therefore the success of this fund is reliant on the diligence of its fund manager, Philip Rodrigs, who we hold in high regard.”
The fund, which is underweight the FTSE 250 by 22.2 percentage points and overweight the FTSE Small Cap and AIM markets has a yield of 1.09 per cent and an OCF of 0.8 per cent.
Third on the list – although there is a 44 percentage point drop-off – is Fidelity UK Smaller Companies, run by FE Alpha Manager Alex Wright and Jonathan Winton.
The manager, who won the FE Alpha Manager of the year award this year, has run the fund since 2008, has the potential to look outside the UK as well as use derivatives.
Square Mile Research said: “Wright has swiftly made his mark in his running of this fund and his first few years of performance have been extraordinarily good.”
Indeed, since he took over the fund in February 2008 it has been the best performing fund in the sector, returning 401.95 per cent. The £423m, four crown-rated fund, has an OCF of 0.95 per cent.
Other funds narrowly missing out on the top five include Livingbridge UK Micro Cap, Old Mutual UK Smaller Companies and Schroder UK Smaller Companies.
At the other end of the spectrum, Henderson UK & Irish Smaller Companies and FP Octopus UK Micro Cap Growth have struggled relative to their peers.
Performance of funds vs sector over 5yrs
Source: FE Analytics
The £173m Henderson fund has been run by Rob Giles and Adam McConkey throughout the period, where it has returned 91.19 per cent – the worst in the sector.
Similarly, the £24.7m FP Octopus UK Micro Cap Growth fund, which was taken over by Richard Power in November last year, has returned 95.81 per cent.
The two funds, which were the only funds not to return triple-digit returns over the past five years, have an OCF of 0.85 and 1.79 per cent respectively.
The third-lowest returning fund is the £195m Baillie Gifford British Smaller Companies fund, run by Andrew Strathdee, with a return of 100.78 per cent.
The fund, which typically holds between 50 and 80 stocks and has a low turnover due to its long-term approach, is overweight consumer services, industrials and healthcare.
Boohoo.com (5.7 per cent), Abcam (4.6 per cent) and Renishaw (3.8 per cent) are the top three holdings though larger companies such as Cineworld and Ted Baker are among its top 10 positions.
The fund has an OCF of 0.68 per cent.
Just outside the bottom five are Aberdeen UK Smaller Companies, L&G UK Smaller Companies Trust and Lazard UK Smaller Companies.