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Top performing funds of 2014 under the microscope

We take a close look at three of the best performing equity funds so far this year.
November 12, 2014

Small and mid-cap funds were the focus of attention in 2013, but the picture this year is more nuanced - although small companies continue to provide tasty stockpicking opportunities for hungry investors. We took a look at three of the top-performing equity funds so far this year.

 

MFM Slater Growth (GB00B0706C66)

In the Investment Management Association's UK All Companies sector, the standout performer is the MFM Slater Growth Fund.

Jason Hollands, managing director of Tilney Bestinvest, points out that even though it sits in the All Companies sector and is allowed to invest in companies of all sizes, in practice it is an overwhelmingly small companies fund, typically investing over 75 per cent in small companies with very little in the blue-chip index.

"Smaller companies are less well researched than large companies and therefore provide greater opportunities for good stockpickers, which fund manager Mark Slater undoubtedly is," he says.

The Slater Growth Fund is a case in point. It has posted good performance thanks to the number of stock winners within its portfolio, notably Hutchison China Meditech (HCM), which is up around 80 per cent so far this year and makes up around 10 per cent of the portfolio.

Laith Khalaf, senior analyst at Hargreaves Lansdown, thinks that, longer term, Mr Slater should deliver good returns to investors, but adds the qualifier that performance is likely to be "lumpy".

Elite Webb Capital Smaller Companies Income and Growth Fund (GB00B63JD951)

One of the top 10 performers in the IMA UK Equity Income Funds sector so far this year has been Elite Webb Capital Smaller Companies Income and Growth, which continues the small companies theme. It is also the top performer over the year to end September 2014. "Unlike conventional income funds, which focus on large, blue-chip dividend payers, this tiny fund invests 100 per cent in smaller companies," Mr Hollands notes.

However, this also makes it a riskier proposition. There are currently 24 stocks in the portfolio, which means one or two going wrong could seriously damage the fund, although there is also the potential for greater long-term outperformance if the manager gets his stock picks right. The fund has a 1 per cent annual management fee, which is towards the higher end when it comes to fund management charges. The latest reports and accounts, published in 2013, suggest a 2.75 per cent ongoing charge, including administrative expenses, probably because, at £3.9m, the fund is so small that fixed costs lay a heavy burden on investors.

Dividend growth has slowed this year among larger companies, while smaller stocks have gained more from the UK economic recovery and seen strong earnings and dividend growth. The fund has had a good 2014 in adverse conditions. It has outperformed its sector and the IMA UK Smaller Companies sector so far in 2014, returning 3.9 per cent compared with 0.7 per cent from the IMA UK Equity Income sector and -2.3 per cent from the UK Smaller Companies sector.

Elite's performance record examined over a longer timeframe has not been consistently strong. Mr Hollands points out that over three years, it is the worst fund in the sector. However, within that three year period there has been a change of investment manager to Peter Webb , who has managed the fund's recent turnaround in fortunes.

Schroder Global Healthcare (GB0003880183)

There is a hotchpotch of investment strategies to be found in the IMA Global sector. In the year to date the top performers are niche funds focused on the healthcare sector. This comes on the back of a lot of merger and acquisition activity, as well as rumours of bids in the pharmaceutical sector. Schroder Global Healthcare is a specialist fund focused on investing in pharmaceutical and medical services companies, which has been a hot area of the market over the past year.

The fund is over 60 per cent invested in US companies and has therefore benefited as the US stock market hit an all-time high.

Mr Khalaf says: "Pharmaceutical funds are enjoying their day in the sun. However, they are specialist vehicles and so really only for those with large, well-diversified portfolios."

STARS OF 2014

NameISINIMA sectorFund size Total return YTD (%)Total return 1 year (%)
MFM Slater GrowthGB00B0706C66UK All Companies£131.4m11.125.5
Elite Webb Cap Smaller Co Inc & Gr AccGB00B63JD951UK Equity Income£3.3m3.918.3
Schroder Global Healthcare A AccGB0003880183Global£165.9m18.026.2

Source: Morningstar, as at 30 September 2014