UK equity funds managed by the likes of Fidelity, Unicorn and Slater Investments have won some of FE’s top ratings yet remain relatively nimble, data from FE Analytics suggests.
Fund size is a closely-watched issue among investors. While many are reluctant to invest in funds that they consider to be too small, investing in a large fund could mean that it is no longer able to take advantage of more niche investment opportunities.
Here, we have filtered the IA UK All Companies sector for funds that hold the maximum FE Crown rating of five, are overseen by an FE Alpha Manager and have assets under management of less than £150m.
Four funds made the cut and we take a closer look at them below.
Slater Recovery
The smallest member of the list is the £52.8m Slater Recovery fund, which is headed up by FE Alpha Manager Mark Slater.
It is built around a concentrated portfolio of between 30 and 60 stocks, with a preference for companies that trade at a low P/E (price-to-earnings) multiple in relation to earnings growth, strong cash flow and a strong financial position.
Performance of fund vs sector and index since launch
Source: FE Analytics
Top holdings include biopharmaceutical company Hutchison China MediTech, healthcare firm Alliance Pharmaceuticals and e-commerce media company Future. The biggest sector weightings are to software services, media and pharmaceuticals.
As the chart above shows, the fund’s 364.10 per cent total return since launch in 2003 has been significantly higher than its average IA UK All Companies peer and the FTSE All Share (which is not the fund’s benchmark). It is also in the sector’s top quartile over one, three, five and 10 years.
Slater Recovery has an ongoing charges figure (OCF) of 0.84 per cent.
Unicorn Outstanding British Companies
Next up is the first of two portfolios run by Unicorn Asset Management: the £68.1m Unicorn Outstanding British Companies fund. FE Alpha Manager Chris Hutchinson is the lead manager of this five FE Crown-rated fund, with Max Ormiston as deputy.
The managers define ‘outstanding companies’ as – and take a breath ahead of this – “those whose economics and risks are well understood; whose revenues, earnings and cash flows are predictable to a high degree of certainty; which sell products and services into growing markets; which have market leadership positions and lasting competitive strength; which generate high average and incremental returns on invested capital; which convert a high proportion of their earnings into free, distributable cash; which can show a consistent track record of operating performance; which are run by decent, experienced individuals, who manage their businesses with the goal of maximising owner-value; which operate with low core debt; which are not predominantly acquisition-led; [and] which produce clean, intelligible financial statements”.
Performance of fund vs sector and index since launch
Source: FE Analytics
Hutchinson has run the fund since its launch in December 2006 and over this time it has made a 213.97 per cent total return, which is the eighth highest in the IA UK All Companies sector. Furthermore, it is top-quartile over one, five and 10 years.
Unicorn Outstanding British Companies has a 0.85 per cent OCF.
Unicorn UK Growth
The second Unicorn offering on the list is Unicorn UK Growth. This £73.3m fund has FE Alpha Manager Fraser Mackersie as its lead, with Alex Game joining him at the end of 2017.
The portfolio is concentrated, holding up to 50 stocks. But unlike Unicorn Outstanding British Companies, its holdings can be drawn from all parts of the market – although the managers have a preference for small- and medium-sized companies.
Performance of fund vs sector and index since launch
Source: FE Analytics
Mackersie and Game are mindful that economic growth in the UK is lacklustre, owing in part to uncertainty over Brexit, but added that they are confident they can still find attractive investment opportunities. They highlight the portfolio’s 18.6 per cent allocation to software & computer services as an example of this.
“A good example of attractive and sustainable growth within the UK economy is the digital sector and, in particular, the e-commerce market, which is already one of the most developed in the world,” they said in the last interim report.
“The fund’s exposure to this rapidly evolving area of the economy has been gained through investment in companies that deliver and operate the necessary digital infrastructure, rather than through direct investment in consumer retail stocks that are seeking to secure efficiencies through the use of digital technology.”
Unicorn UK Growth has an OCF of 0.87 per cent.
Fidelity UK Opportunities
Leigh Himsworth’s £114m Fidelity UK Opportunities fund has also made it onto the list of top-rated IA UK All Companies funds that remain below £150m. The FE Alpha Manager has run the portfolio since launch in September 2011.
Himsworth is a very experienced UK equity manager and has been in the business for more than 20 years. He worked at Royal London, Gartmore and City Financial before moving to Fidelity, building up a strong track record across his career.
Performance of fund vs sector and index since launch
Source: FE Analytics
Since launch, the fund has made a total return of 121 per cent, which ranks the fund 35th out of 224 members of the sector. It is in the peer group’s second quartile over three and five years but slips into the fourth quartile over one year.
The manager currently has a cautious outlook on the UK economy, highlighting a recent drop in M1 (money supply) and Brexit uncertainty. “Growth is clearly being hit, as are financials due to the demand outlook – in this context I believe we need to continue to stay defensive but look for stocks that are robust, on reasonable ratings and with low levels of cyclicality to their earnings for the time being,” he said.
Fidelity UK Opportunities has a 0.95 per cent OCF.