As Paul Davis of Clear Financial Advice explained in an article earlier today, boutique funds do not have the same degree of financial stability of their higher-profile rivals, and their managers run a greater risk of being snapped up by a rival.
As a result, Davis puts a £100m minimum limit on the funds he picks, but Hargreaves Lansdown’s Rob Morgan (pictured) believes investors should be a little more flexible than this.
"£100m does appear to be the cut-off for most IFAs," he said. "I’ve spoken to a lot of companies that have funds with £20m or £30m AUM, which have found it really difficult to grow." "They’re not on the radar of most of the platforms, and so have to be patient. They tend to first get picked up by discretionary stockbrokers, and then when they get a bit bigger they get some momentum."
Hargreaves does not tend to recommend funds with less than £30m because it would not want to get into a position where it was a majority owner, but Morgan says in certain cases, funds as small as this should be considered by investors.
"I don’t think investors should have a hard and fast cut-off point – certain specialist funds are often a lot smaller, and small cap funds require a high level of flexibility so need to be small if they want to compete."
Here are five sub-£100m funds investors may wish to consider for their portfolio:
Marlborough UK Leading Companies
The four crown-rated £78.5m portfolio has failed to grow its assets significantly in spite of a stellar long-term track record and the security of lead manager Giles Hargreave, who has long been associated with Marlborough.
It is a top-quartile performer in its IMA UK All Companies sector over one, three, five and 10 years – a feat matched by only a handful of funds.
It has returned 191.3 per cent over the last decade, compared with 111.77 per cent from its All Share benchmark and 103.66 per cent from its sector average.
Performance of fund vs index and sector over 10-yrs
| Name | 1-yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
|---|---|---|---|---|
| Marlborough - UK Leading Companies | 14.45 | 43.28 | 30.45 | 191.3 |
| FTSE All Share | 7.24 | 17.97 | 9.39 | 111.77 |
| IMA UK All Companies | 9.83 | 20.03 | 6.62 | 103.66 |
Source: FE Analytics
Marlborough UK Leading Companies is a multi-cap portfolio, drawing on Hargreave’s expertise in small-caps and combining it with his highest-conviction calls in the large and mid cap markets.
Top-10 positions include AstraZeneca and FTSE 250 industrial rental company Ashtead Group.
The fund currently has 30 per cent in mega caps, which Hargreave defines as a company with a market cap of more than £20bn, 28 per cent in large caps [£5bn-£20bn], 32 per cent in medium caps [£1bn-£5bn], 8 per cent in small caps [£250m-£1bn], and the rest split between micro caps, cash, property and bonds.
It has a minimum investment of £1,000 and a total expense ratio (TER) of 1.55 per cent.
Margetts Venture Strategy
The Jupiter Merlin range is the first port of call for many investors looking for a multi-manager solution, but the £70m Margetts Venture Strategy more than holds its own against these portfolios.
FE Alpha Manager Toby Ricketts’ fund has significantly outperformed its IMA Flexible Investment sector and benchmark over one, three, five and 10 years, albeit with more volatility.
It has upstaged the £1.68bn Jupiter Merlin Growth Portfolio, which also sits in Flexible Investment sector, over all of these time frames, by some distance. It is much cheaper as well, with a TER of just 1.62 per cent.
Performance of funds vs sector over 10-yrs
Source: FE Analytics
The fund is heavily overweight emerging markets at the moment and particularly Asia Pacific ex Japan.
Among its top-10 holdings are Aberdeen Emerging Markets, First State Asia Pacific Leaders and Schroder Asian Income. It is highly concentrated, with 70 per cent of its assets accounted for in its top-10 holdings.
Margetts Venture Strategy has a minimum investment of £1,000.
McInroy & Wood Smaller Companies
This family-run business may not have the marketing budget or financial stability of an M&G or Invesco, but its fund range has a stellar track record – none more so than the McInroy & Wood Smaller Companies portfolio.
The £37.5m fund is number-one in its IMA Global sector over 10 years, with returns of 278.01 per cent.
It is also a top-10 performer over three and five years, with returns of 36.08 and 39.84 per cent respectively.
FE Alpha Manager Tim Wood uses no specific benchmark. He invests exclusively in developed markets, split mostly between the UK, continental Europe and the US.
McInroy & Wood Smaller Companies is a highly concentrated portfolio, with 93 per cent of assets invested across just 22 stocks. No single company has more than a 5 per cent weighting.
It has a TER of 1.61 per cent and a minimum investment of £10,000, but does not appear on any of the major platforms.
Aviva Inv Distribution
Some funds may struggle to garner much interest due to a poor long-term track record, which may go some way in explaining the lack of money flowing into the five crown-rated Aviva Inv Distribution fund.
The £87.4m portfolio is a third-quartile performer in its IMA Mixed Investment 20-60% Shares sector over the last decade, but has had a significant reversal in fortunes since FE Alpha Manager Chris Murphy took over in April 2009.
Since then, the fund is up 69.78 per cent – almost exactly twice as much as its benchmark, with only slightly more volatility. It also has a very competitive yield of 4.1 per cent.
Murphy runs a mixed-asset portfolio, currently split around 50/50 between equities and fixed interest. He has next to nothing in gilts, instead focusing on corporate bonds. All of his equity exposure is domiciled in the UK.
The fund has a minimum investment of £1,000 and a TER of 1.38 per cent.
Unicorn UK Income
Last but certainly not least is the £63m Unicorn UK Income portfolio, a fund that is often flagged up in FE Trustnet studies.
It is number-one in the highly competitive UK Equity Income sector over three and five years, beating off stiff competition from the likes of Artemis Income and Trojan Income.
It is a small-cap focused fund, with much of its assets invested in the FTSE Small Cap and AIM markets. However, in spite of this, it is only a touch more volatile than its FTSE All Share benchmark over five years.
Performance of fund vs index and sector
| Name | 1yr returns (%) | 3-yr returns (%) | 5-yr returns (%) | 10-yr returns (%) |
|---|---|---|---|---|
| Unicorn - UK Income | 21.62 | 58.76 | 60.15 | N/A |
| IMA UK Equity Income | 9.72 | 22.64 | 7.09 | 103.44 |
| FTSE All Share | 7.24 | 17.97 | 9.39 | 111.77 |
Source: FE Analytics
"I think this is a fund that might struggle a bit if it had an influx of money, given its focus," said Morgan.
"The fund has grown its assets because of its performance, rather than because it’s on the buy-lists. This is the right way to go about things."
FE Alpha Manager John McClure’s biggest sector positions are in services and industrials. VP, a plant-hire company, is his biggest holding.
Unicorn UK Income has a minimum investment of £2,500 and a TER of 1.59 per cent. It is currently yielding 3.85 per cent.