Marlborough Special Situations, ASI UK Smaller Companies and Investec UK Smaller Companies are among the funds that have made the most money for their investors over the past 20 years, FE fundinfo data shows.
The two decades since the start of 2000 have given fund managers plenty of different conditions to navigate and total returns from Investment Association funds between 1 January 2000 and 31 December 2019 ranged from almost 1,200 per cent to a loss of just over 10 per cent.
The millennium turned with markets gripped by the bursting of the dotcom bubble, which then gave way to the commodity supercycle and strong market gains. But investors were hit once more by the global financial crisis of 2008, before ultra-loose monetary policy shored up the bull market that remained in play ever since.
Against this backdrop, the fund that made the strongest total return was Marlborough Special Situations, which was up 1,178.4 per cent for the 20 years to the end of 2019.
Performance of fund vs sector over 20yrs
Source: FE Analytics
The £1.5bn fund is headed up by FE fundinfo Alpha Manager Giles Hargreave (who has been at its helm since July 1998) and Eustace Santa Barbara.
The process behind the fund looks for companies with significant growth but has risk management at its heart, running a diversified portfolio of between 150 to 250 positions with each limited to a maximum of 2 per cent.
FE Investments, which has Marlborough Special Situations on its Approved List, said: “Running this fund since 1998, Hargreave has outperformed peers and the UK smaller companies market in almost every year. The fund tends to outperform in falling markets: for example, during the financial crisis in 2008 and more recently in 2011 and 2014.
“This is mainly due to good stock selection but also the management of company-specific risks through limited exposure to any single stock, which prevents large losses in one holding from affecting the portfolio too much.”
As the table below shows, Marlborough Special Situations is far from the only IA UK Smaller Companies fund to make some of the highest total returns since the millennium started.
Source: FE Analytics
If we widen it out to look at the 100 highest returning funds between 1 January 2000 and 31 December 2019, then 19 reside in the IA UK Smaller Companies sector.
Only the IA Specialist sector – which is home to a very broad range of different investment approaches and focuses – has more in the top 100 at 20 entrants.
ASI UK Smaller Companies appears in second place after making 921.99 per cent during the 20 years in question. With assets of £1.9bn, this is the largest member of the IA UK Smaller Companies and has been run by FE fundinfo Alpha Manager Harry Nimmo since January 1997.
“This is a fund with an impressive pedigree, having been run by the same manager since its launch in the late 1990s,” said analysts at Square Mile Investment Consulting & Research.
“In a volatile and generally less researched area of the market such as this, experience and sound judgement are crucial, two virtues that Mr Nimmo has in abundance. His preference is for quality, growing companies that have the ability, or potential, to be future leaders in their fields.”
MI Discretionary Unit Fund, which is smaller than the other two funds mentioned with assets of £47.3m, appears in third place with its 913.35 per cent return. The fund was managed by Simon Knott between 1990 and 2016, after which it was taken over by Melvin Mehta.
UK smaller companies aren’t the only place to have made the millennium’s highest returns, however.
Investors in the Schroder US Smaller Companies fund, which was managed by Jenny Jones from the end of 2002 until 1 April 2019, are up 858.23 per cent over the past 20 years while returns of more than 750 per cent have come from the likes of Stewart Investors Asia Pacific, Schroder ISF Greater China, Baillie Gifford Global Discovery and Polar Capital Global Insurance.
But not every Investment Association member can boast such strong returns over the past 20 years, although only one of the 672 funds that have a track record going back this long has made a loss for its investors.
Source: FE Analytics
As the table above shows, Threadneedle Japan is sitting on a negative return of 10.57 per cent between the turn of millennium and the end of 2019.
The fund was hit by a 65.48 per cent maximum drawdown at the very start of the period, as markets sold off during the bursting of the dotcom bubble, and has lagged its average peer and benchmark since. Over the same time frame, the IA Japan sector posted an average return of 37.12 per cent while the MSCI Japan index is up 58.56 per cent.
Although this is the only fund to be in negative territory over 20 years, it is joined by plenty of other Japanese equity funds at the very bottom of the millennium’s performance rankings.
As can be seen, Scottish Widows Japan Growth, ASI Japanese Growth Equity and Invesco Japanese Smaller Companies (UK) have all made a total return of less than 5 per cent over the past 20 years reflecting the long-term issues with Japan.