Six multi-asset portfolios count JPM UK Smaller Companies and Standard Life UK Smaller Companies as top-10 holdings – making them the joint most held funds in the sector.
While UK small caps have been among the best-performing funds of the last decade, they are relatively unpopular with fund-of-funds managers – particularly when compared with the IMA UK Equity Income and IMA UK All Companies sectors.
Most held UK Smaller Companies funds
| Name | Number of funds that hold it |
|---|---|
| JPM - UK Smaller Companies |
6 |
| Stan Life Inv - UK Smaller Companies | 6 |
| Cazenove - UK Smaller Companies | 5 |
| Old Mutual - UK Select Smaller Companies | 5 |
| Investec - UK Smaller Companies | 4 |
| Newton - UK Smaller Companies | 4 |
Source: FE Analytics
FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies is the most popular fund with the broader range of fund of funds managers, as five out of the six managers who count JPM UK Smaller Companies as a top-10 holding work for JP Morgan.
The six funds that count Standard Life UK Smaller Companies as a top-10 holding are all relatively niche funds. They include Castleton Growth and SF Adventurous – both of which have less than £10m of assets under management.
Nimmo (pictured) has managed the £1.1bn fund since its launch in 1997 and has been a standout performer in the sector ever since.
According to FE Analytics, it is the fifth-best performing fund in its sector over the last decade with its returns of 429.19 per cent. Standard Life UK Smaller Companies has also been slightly less volatile than the IMA UK Smaller Companies sector over that time.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The JPM fund has had a good 12 months, but has only managed third-quartile returns over three, five and 10 years.
FE Alpha Manager Paul Marriage’s five crown-rated Cazenove UK Smaller Companies is another favourite with fund of funds managers.
All in all, five funds count it as a top 10-holding, including FE Alpha Manager Bill McQuaker’s Henderson Multi-Manager Managed fund. Cazenove UK Smaller Companies is McQuaker’s eighth-largest holdings, making up 4.54 per cent of the £436m portfolio.
Cazenove UK Smaller Companies has also been a top-quartile performer in its sector over one, three, five and 10 years. It has been the second-best performing fund in the sector over three years and the third best over five.
Four funds count FE Alpha Manager Philip Rodrigs’ Investec UK Smaller Companies portfolio as a top-10 holding, meaning it is the fifth most popular UK small cap fund with managers.
Rodrigs took over the £490m fund in June 2006. Since then it has been a top-quartile performer, with returns of 127.39 per cent, beating the IMA UK Smaller Companies sector by 73.14 percentage points in the process.
Performance of fund vs sector and index since June 2006
Source: FE Analytics
Its FTSE Small Cap ex ITs benchmark has returned 54.25 per cent over the same period.
Old Mutual UK Select Smaller Companies and Newton UK Smaller Companies also feature on the list of the most popular funds among multi-managers. They are held by five and four funds, respectively.
No funds count FE Alpha Managers Julian Fosh and Anthony Cross’ Liontrust UK Smaller Companies as a top-10 holding – despite the fact its returns of 105.44 per cent over five years mean it is the best-performing fund in the sector over the last five years.
It is a similar story with Fidelity UK Smaller Companies and Old Mutual Dublin UK Select Smaller Companies. Only one fund counts either of them as a top 10-holding. The Fidelity fund has been the best performer over three years and the Old Mutual fund has been the best over 10.
Hargreaves Lansdown’s Rob Morgan says he is baffled by how few funds of funds hold UK Smaller Companies funds, although he does not expect this trend to change any time soon.
"A lot of investors, not just fund managers, are guilty of ignoring or avoiding the UK small cap sector. I don’t really know why either, especially when you look at their long-term performance," he said.
"I suppose a lot of investors are seduced overseas to global emerging markets or Asia Pacific funds to add Beta to their portfolio. However, we actually find that UK small cap managers have been able to add tremendous value through their stock selection."
"However, if there is a more encouraging investing environment, UK smaller companies are a natural place to go."
"Normally we see investors looking for mega cap companies, but if they want to add risk, smaller companies would be natural beneficiaries of a market rally."