The Diamond Jubilee celebrations will focus on the best of British, which amid the economic turmoil is also not a bad strategy for some of your portfolio. Ways to get exposure include Marlborough UK Micro Cap Growth, the top-performing UK Smaller Companies Fund over five years, and one of the top four over one and three years.
- Strong performance
- International exposure
- Reasonable charges
- Experienced fund manager
- Volatility
This helped it make the shortlist for the Investors Chronicle Awards Best UK Equity Growth Fund category (read more on this), as well as its reasonable total expense ratio (TER) of 1.52 per cent. Some specialist funds such as those focused on smaller companies have higher charges, including several investment trusts which are generally assumed to be cheaper than open-ended funds like this one. Because it is open-ended the fund is not subject to the discounts and premiums to net asset value that can increase the volatility of rival smaller company investment trusts.
The fund aims for a total return of capital and income in excess of the FTSE Small Cap ex Investment Companies index over the medium to long term. It invests in mainly UK listed smaller companies (currently more than 81 per cent of the portfolio) with a market capitalisation of £100m or less at the time of purchase, with a considerable proportion of the portfolio in ones less than £50m.
Many of these companies are listed on the Alternative Investment Market (Aim) and are considered to be higher risk than FTSE Small-Caps, as they tend to be less easy to buy and sell. This can add to volatility, so while the fund has made positive returns in most calendar years, during 2008 it lost nearly 38 per cent, although it largely recouped this in 2009 when it made nearly 60 per cent. The fund's manager, Giles Hargreave, also tries to mitigate risk with diversification so it is unusual if any holding is worth more than 2 per cent of the total fund or it holds less than 100 stocks. At present it has 226 holdings.
IC TIP RATING | |
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Tip style: | GROWTH |
Risk rating: | HIGH |
Timescale: | LONG TERM |
When looking for a share, Mr Hargreave and his team want a combination of growth potential and value, and use various measures to decide whether to buy. These include the PE-to-growth (PEG) ratio, how sustainable the company's profit growth is likely to be, and whether it is converting its accounting profit into cash flow. They also look at a company's debt profile, the quality of the management and whether the company's growth is driven by acquisitions or sustainable internal growth.
Mr Hargreave is an experienced small-caps investor who has also achieved strong performance with the other funds he runs, such as Marlborough Special Situations Fund, another small-caps mandate (read our interview with Mr Hargreave). He also co-manages the Marlborough Multi Cap Income and Marlborough UK Leading Companies funds.
A concern for investors is exposure to the domestic UK economy now that we are back in recession, and this is typically greater among smaller companies. However Mr Hargreave seeks companies which make a good proportion of their earnings abroad, and he says that the Aim market in particular has many companies which operate outside the UK. The fund's largest sector exposure is currently technology, an area which many investment professionals see as still having much potential if you ignore Facebook's recent initial public offering (IPO) (read more on this and our tips on GLG Technology and Herald Investment Trust). The fund also has large exposure to industrials, another internationally focused sector.
So if you can tolerate some volatility and have a long-term investment horizon, this top performer is still a buy.
MARLBOROUGH UK MICRO CAP Acc (GB00B02TPH60) | |||
PRICE | 262.52p | MEAN RETURN | 26.53% |
IMA SECTOR | UK Smaller Companies | SHARPE RATIO | 1.9 |
FUND TYPE | Unit trust | 1-YEAR PERFORMANCE | 9.06%* |
FUND SIZE | £108.56m | 3-YEAR PERFORMANCE | 114.13%* |
No OF HOLDINGS | 226* | 5-YEAR PERFORMANCE | 50.47%* |
SET UP DATE | 04 October 2004 | TOTAL EXPENSE RATIO | 1.52% |
MANAGER START DATE | 04 October 2004 | YIELD | 0.00% |
TURNOVER | 88.68%* | MINIMUM INVESTMENT | £1,000 |
STANDARD DEVIATION | 13.67% | MORE DETAILS | www.marlboroughfunds.com |
Source: Morningstar, *Marlborough Fund Managers.
Performance data as at 1 May 2012
Top 10 holdings as at 1 May 2012
Clean Air Power | 1.8% |
CML Microsystems | 1.7% |
API Group | 1.5% |
Cap-XX | 1.4% |
Advanced Computer Software Group | 1.4% |
IDOX | 1.3% |
GB Group | 1.3% |
M&C Saatchi | 1.2% |
Gemfields | 1.2% |
Lo-Q | 1.1% |
Sector breakdown
Technology | 27.4% |
Industrials | 21.8% |
Consumer services | 13.4% |
Oil & gas | 7.9% |
Basic materials | 6.0% |
Health care | 4.7% |
Financials | 4.6% |
Non classified | 1.5% |
Consumer goods | 0.7% |
Telecommunications | 0.6% |
Utilities | 0.2% |
Cash and equivalents | 11.2% |