The £7.4m portfolio, which is headed up by FE Alpha Manager Mark Martin, is also a top-decile performer in its UK All Companies sector over three years and has easily outperformed its FTSE 250 benchmark.
Performance of funds vs sector and benchmark over 5-yrs
| Name | 6m (%) | 1yr (%) | 3yr (%) | 5yr (%) |
| Neptune UK Mid Cap | 21.78 | 16.46 | 96.13 | N/A |
| FTSE 250 | 16.53 | -0.21 | 80.66 | 11.94 |
| IMA UK All Companies | 13.39 | -2.55 | 57.69 | 1.4 |
| Schroder UK Mid 250 | 20.16 | -2.16 | 55.83 | -14.54 |
Source: FE Analytics
Martin’s fund is one of a number that is hoping to capitalise on Schroder UK Mid 250’s poor run in recent years. Andy Brough’s £1.3bn portfolio once dominated the UK mid cap market, but has recently fallen out of favour with a number of IFAs following consistent underperformance.
In a recent FE Trustnet article, Hargreaves Lansdown’s Richard Troue highlighted the manager’s poor stock-picking, which has led to the portfolio losing 14.54 per cent over a five-year period.
While Brough’s vehicle is still the largest of all the UK mid cap funds in the IMA unit trust and OEIC universe, it has experienced significant outflows of late – just over £300m in the last year, according to FE Analytics – implying that investors are beginning to look elsewhere.
With a three-year track record finally under its belt, Neptune UK Mid Cap is one that could be set to fill the void. The vast majority of IFAs only consider recommending a fund with a three-year history, so it is likely that the sector-leader’s modest £7.4m of assets under management will increase in the coming months.
The portfolio is the only one of its kind with an FE Crown Fund Rating of five, thanks to its impressive risk/return record. As well as significantly outperforming its FTSE 250 benchmark since launch, it is also the least volatile of all the UK mid cap funds over the period.
Performance of fund since launch vs sector and benchmark
Source: FE Analytics
Only Franklin UK Mid Cap has come close in matching the returns of Martin’s portfolio since December 2008, but it has been significantly more risky; according to FE data, Neptune UK Mid Cap has an annualised volatility over three years of 17.47 per cent, compared with 19.94 per cent from its competitor.
Martin lost significantly less than his benchmark during last summer’s market slump, but has also left the index behind during the 2012 rally.
The manager currently views his overweight in financials as his highest-conviction position. Although he expects banks to remain constrained by capital problems for some time, he thinks this has created an opportunity for companies with the ability to lend and charge higher prices as a result. Martin is keen on Intermediate Capital and Close Brothers, which are both significant holdings in his portfolio.
He is also positive on housebuilders, which has been one of the most unloved sectors of recent years. Martin believes the Government’s new-build strategy – which will underwrite 95 per cent mortgages – will transfer risk from the builders to the Treasury and see the sector flourish as a result. Redrow is his favourite company in this area.
Neptune UK Mid Cap has a minimum investment of £1,000 and a total expense ratio (TER) of 2.5 per cent, which is well above average for a UK equity fund. However, this cost is likely to come down as the size of the portfolio increases.
In a recent FE Trustnet article, Brough defended the reputation of the Schroder UK Mid 250 fund, insisting that it is well placed to perform well in 2012 and beyong.
"Like [Arsenal FC manager] Arsene Wenger we had a great five years from launch to 2005 and as you can see from the numbers hasn't won anything for the last five years,” he said.
“Having come through this difficult period the fund is now full of very cheap stocks and I am convinced it will be back to its winning ways this year.”