Livingbridge UK Micro Cap, LF Miton European Opportunities and Aptus Global Financials are among the most interesting funds you probably haven’t heard of, according to professional fund pickers.
While many will know the names of investment giants such as M&G Optimal Income, Fundsmith Equity and LF Woodford Equity Income, there are a number of off-the-radar funds that are catching the eye of multi-managers.
Below, FE Trustnet asks those in charge of multi-manager funds and model portfolios for their most interesting new fund that has yet to hit the mainstream. The only criteria was that all funds must have assets under management (AUM) of under or around £300m.
Downing Strategic Micro-Cap Investment Trust
We start with the only investment trust on the list, the £51.7m Downing Strategic Micro-Cap Investment Trust run by Judith MacKenzie.
John Husselbee, head of multi-asset at Liontrust and manager of the firm's model portfolios, said: “It is not typically what we do within our portfolios and if we are looking at [smaller funds] they tend to be run by managers who have reached a certain pedigree.”
While the investment trust has only been in existence since May 2017, MacKenzie has built up a strong track record through her open-ended MI Downing UK Micro-Cap Growth, which she has run since 2011.
Since she took over the fund it has returned 127.69 per cent, beating the IA UK Smaller Companies and Numis Smaller Companies and AIM ex ITs index.
Performance of fund vs sector and benchmark under MacKenzie
Source: FE Analytics
While the open-ended structure has a longer track record and has just £33.4m in AUM, Husselbee said the closed-ended structure is his preference as it gives fund managers in more volatile asset classes greater security over the long term.
“The protection it has is through sitting in the structure that it does; as a closed-ended listed fund, that buys the time and patience required,” he said.
The investment trust invests primarily in micro-cap stocks across the alternative investment market (AIM) as well as unlisted companies.
“From her private equity background the manager take stakes in both listed and unlisted companies and will help them by being very proactive,” Husselbee added, including in some cases taking a position on the board.
“I would not suggest you had a large holding in micro-caps but I think as something to lock away for a long-term investment it is the way forward.”
LF Livingbridge UK Micro Cap
Sticking with the micro-cap theme, Seven Investment Management senior investment manager Damian Barry is backing the £108m LF Livingbridge UK Micro Cap fund run by FE Alpha Manager Ken Wotton.
“We have invested in a number of funds that are sub £300m in assets under management, where we have confidence in the approach and feel that relatively low assets under management is actually a reason that performance will be better than equivalent funds with larger AUM,” the manager said.
“Clearly the larger the fund size, the less flexibility it has to invest without influencing the market price.”
Livingbridge UK Micro Cap is a case in point he added, as the fund is investing in less liquid parts of the market, looking for smaller companies that have significant structural growth stories.
“In a world that is driven by flows into large cap ETFs, smaller companies often go unnoticed for long periods of time.”
The four FE Crown-rated fund has returned 312.68 per cent since its launch in 2009, beating the IA UK Smaller Companies sector’s 286.37 per cent, as the below chart show.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
“Livingbridge’s investment approach takes more of a private equity approach to public equity,” Barry said.
“In this area of the market there is sparse sell side analysis on any of the companies, but this creates massive investment opportunities for managers like Livingbridge.”
Livingbridge UK Micro Cap has a clean ongoing charges figure (OCF) of 1.02 per cent.
Teviot UK Smaller Companies
Still with the smaller companies theme, Premier Asset Management’s Simon Evan-Cook said the £22m Teviot UK Smaller Companies fund is another that could be worth investors’ attention.
“We’ve recently established a position in the newly-launched Teviot UK Smaller Companies,” he said.
“Despite being a new fund, the managers are highly experienced UK small-cap investors and we’re confident they can do a great job for our portfolios.”
The fund was launched in August last year and is run by co-managers Andy Bamford and Barney Randle.
What is particularly appealing for investors is that the fund uses a value approach, whereas most of its UK small-cap peers operate in more of a growth-oriented style, Evan-Cook added.
“This helps us to diversify our funds a bit more, but also increases our chances of making good returns for our own holders, as small-cap value funds can outperform the wider main market by a very long way if they’re run well and held for the long term.”
Since its launch the fund has returned 13.86 per cent while its average IA UK Smaller Companies peer has returned 5.04 per cent and the Numis Smaller Companies 1000 ex IT index has returned
Aptus Global Financials
Away from small- and micro-caps, Waverton Investment Management head of third party fund selection Luke Hyde-Smith said another up-and-coming offering is the three FE Crown-rated Aptus Global Financials fund.
The £350m fund offers a differentiated, high conviction exposure to the sector, investing globally across the cap spectrum in undervalued opportunities.
It is run by Johnny de la Hey who “brings a great deal of experience having invested in the financial services sector throughout his career”, Hyde-Smith said.
“The overriding focus on both capital appreciation and preservation is a clear positive and the fund’s current 4.3 per cent distribution yield is indicative of the value currently available in the sector.”
He added that investors could should begin to take note of the fund as it will benefit from the reduction of headwinds such as regulation, litigation costs and weak macroeconomic trends that have dogged the sector since the financial crisis.
“The sector offers good value and valuations are particularly attractive within Europe,” the fund picker said.
“The fund is positioned for ongoing recovery in the eurozone periphery, loosening regulation within the US, favours challenger banks within the UK and structural growth in low cost tech empowered companies within emerging markets.”
Aptus Global Financials has a yield of 4.3 per cent and an OCF of 1.44 per cent.
LF Miton European Opportunities
Sam Buckingham, investment analyst at Thomas Miller Investment, said the £218m LF Miton European Opportunities fund is another that will be worth monitoring – though it has yet to make its way into his model portfolios.
The fund is run by Carlos Moreno and Thomas Brown, who have a solid track record of investment experience in European equities having spent 23 years’ and 18 years’ in the area respectively, Buckingham said.
Key to his belief in the portfolio is its process, which has a focus on quality businesses that possess high barriers to entry and have strong balance sheets to help protect from any macroeconomic shocks.
“Although many people are discussing Europe’s recent resurgence and, as a result, tilting their portfolios to the more cyclical areas of the market, we are still cognisant of the fact that sentiment may have peaked, leaving these European cyclicals exposed,” he said.
“The second reason I like the fund is due to another criteria it has: targeting companies that have accelerating revenue growth.”
“Lately, some companies that possess the quality characteristics discussed above have been disappointing on earnings as they have been facing pricing pressures, for a variety of reasons – they have very much been relying on price growth to drive the top line as opposed to volume growth.”
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
The result of this investment philosophy has seen impressive performance from the portfolio since it launched in December 2015, returning 65.31 per cent since inception, as the above chart shows.
LF Miton European Opportunities has a yield of 0.78 per cent and an OCF of 0.95 per cent.