Schroders, having bought Cazenove earlier this year, decided to soft-close the fund in January after it soared past £1bn, meaning that investors have only a few weeks to gain access to it. AFI panellist Whitehead says that Marriage has performed exceptionally well despite the inflows and has done so without sacrificing the style that made his name.
“It has been in our portfolios since 2009,” he said. “It’s a fund we have had a strong conviction in and this year in particular the manager’s style has really played out well.”
Data from FE Analytics shows the fund has made 45.24 per cent so far this year against the 33.49 per cent of the sector average. The FTSE Small Cap index the fund takes as its benchmark has made 36.29 per cent.
Performance of fund vs sector and benchmark in 2013
Source: FE Analytics
“One of the key drivers has been their ability to identify companies that have then gone on to generate strong sales growth and profit growth over the period,” said Whitehead.
“Paul Marriage's focus is on identifying niche market leaders.”
“These are the types of companies that have been able to grow their margins even in a tough economy.”
“The manager doesn’t look to trim positions much and he is largely valuation-agnostic, so he hasn’t been timing the market.”
The fund has made 400.56 per cent over the past decade, the second-best result out of 36 funds in the sector, according to data from FE Analytics.
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
The fund is also the second-best performer over five years and the best over three.
Smaller companies have had a strong run over the past four or five years, and 2013 has seen a growth in confidence that has brought a large number of investors into the sector.
The Cazenove fund has been the principal beneficiary, attracting roughly £530m this year alone. Fidelity UK Smaller Companies, which has already soft-closed, saw inflows of £130m and Old Mutual UK Smaller Companies £88m.
At £1.1bn the fund is now the second biggest in the sector after FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies fund. The next biggest is the £778m Old Mutual UK Smaller Companies fund.
Whitehead says that the fund has had to buy larger companies as it has grown, but the manager has maintained the same style.
In the portfolio, 34 per cent of companies are larger than £500m, with the top-10 among the larger. The number of holdings has increased to 80 as the fund has grown bigger, which Whitehead says is likely to be partly due to a need for liquidity.
“In 2009 when we bought it, the fund was £19.5m and it is now £1.1bn,” he said. “And it has delivered a lot of that outperformance year-to-date when it has been growing so fast.”
Whitehead says that he supports the decision by the fund managers to close the fund to new money at this point, however, saying they have judged the moment correctly.
He acknowledges that it is difficult to find appropriate alternatives after a spate of soft-closures in the sector.
One of the funds the team is looking at for the future is Franklin Templeton UK Smaller Companies.
The fund was tipped by head of FE Research Rob Gleeson in January of this year to turn around under new management, and has fulfilled that expectation.
It is the fifth-best fund in the sector over the past year, having returned 46.88 per cent against the 33.49 per cent of the sector.
Performance of fund vs sector and index in 2013
Source: FE Analytics
Dart is also looking at Harry Nimmo’s £178m Standard Life Global Smaller Companies fund, which was launched in January 2012.
The fund has made 47.16 per cent since then while the MSCI World Small Cap index has made 34.62 per cent.
Performance of fund vs sector and index since launch
Source: FE Analytics
Whitehead says that using a global fund for international smaller companies allocation is cheaper than buying specialist funds for the major regions.
Cazenove UK Smaller Companies has ongoing charges of 1.54 per cent, Franklin UK Smaller Companies 1.64 per cent and Standard Life Global Smaller Companies 1.84 per cent.
