Two funds in the IA UK Smaller Companies sector were in the top 25% for returns, number of positive months and maximum drawdown during the past decade, data from Trustnet has revealed.
As part of its ongoing series into the funds that have delivered consistently positive returns while limiting investor losses, Liontrust UK Smaller Companies and Gresham House UK Micro Cap came out as top of the small-cap portfolios.
We have previously looked at the IA UK All Companies, IA Global and IA North America sectors.
Source: FE Analytics
Darius McDermott, managing director of FundCalibre, said the Liontrust and Gresham funds are two of the “very best” in the UK small-cap sector.
Both portfolios invest in good-quality businesses and avoid riskier parts of the market which are more cyclical, McDermott said. These are characteristics which have allowed both funds to outperform in down markets, but the funds still have their differences.
Liontrust UK Smaller Companies
The Liontrust UK Smaller Companies fund eked ahead between the two on the various measures. It had the better maximum drawdown (23.7%) –the third best of the entire IA UK Smaller Companies sector – and had 85 positive periods out of a possible 120.
Over 10 years the fund made the highest total returns in the IA UK Smaller Companies sector of 479.5%. The £1.7bn fund achieved this with a volatility of 13.4% - the second best in the sector.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Liontrust UK Smaller Companies is run by a four strong management team, comprised of FE fundinfo Alpha Managers Anthony Cross and Julian Fosh and co-managers Victoria Stevens and Matthew Tonge.
The team have a “well-defined and clear process,” McDermott said, which looks for companies with at least one or more specific characteristics: strong distribution networks, recurring revenues and products and intellectual capital.
Companies in the fund’s top 10 include market research company YouGov, retail logistics company Clipper Logistics, Impax Asset Management Group and remote people monitoring technology company Big Technologies PLC. The latter quoted on the Alternative Investment Market (AIM) at the end of last month. The combination of a “consistent process and experienced team” has helped drive the fund’s long-term outperformance, McDermott said.
Liontrust UK Smaller Companies holds an FE fundinfo Crown rating of four and has an ongoing charges figure of 1.36%.
Gresham House UK Micro Cap
The Gresham House UK Micro Cap fund is the other name in the study. It had 84 positive months out of 120, one less than the Liontrust fund, and a maximum drawdown of 27%, the fourth best in the IA UK Smaller Companies sector.
Its total return over 10 years was 346.7%, the sixth highest in the sector for that time frame.
Performance of fund vs sector over 10yrs
Source: FE Analytics
It achieved this outperformance with the fourth-best volatility in the sector of14.1%.
The £301.8m fund is run by lead manager, Ken Wotton and deputy manager Brendan Gulston. The pair look for companies under £250m in market cap and generally in four main sectors: consumer, IT, business services and financials. These are areas where the managers have the “greatest expertise,” McDermott said.
Wotton and Gulston deliberately take a concentrated approach, holding just 52 names in the portfolio.
What makes the strategy so “resilient”, especially in down markets is more down to what the managers won’t own, McDermott explained. The fund’s process doesn’t allow for loss-making companies and companies where the business model is unproven.
Holding an FE fundinfo Crown rating of four it has an OCF of 0.98%.