Exploit the home advantage with MFM Slater Growth

"Domestically-focused UK mid and smaller companies outperformed in relative terms (in June), and given the UK's improving economic outlook it feels right to regain some selective exposure here," argue analysts at wealth manager Whitechurch Securities. They also argue that with the UK's leading equity indices falling back a little in response to the Greek crisis, this could be an opportune time to put cash back to work.

A fund with exposure to UK domestic companies that has outperformed most of its sector peers and broad market indices is MFM Slater Growth (GB00B7T0G907). This is the third best performing fund out of more than 230 peers in the Investment Association (IA) UK All Companies sector over five years, and is also among the top performing funds over one and three years.

The fund is ahead of indices such as the FTSE All-Share and FTSE 250 over one, three and five years.

MFM Slater Growth invests in companies its managers think are attractively priced with superior and sustainable growth potential. The primary valuation tool they use in portfolio selection is the price-to-earnings growth (PEG) ratio. The fund's managers seek a below average PEG than the market as a whole as they think this provides a margin of safety and leaves scope for an upwards status change in the price-earnings ratio. This tends to lead them to smaller companies and the fund currently has around 70 per cent of its assets in small and micro-caps.

The fund's managers also look for:

■ sustainable and above-average earnings growth investment prospects;

■ strong cash flow;

■ a competitive advantage such as a high market share, brand name or something that adds to their confidence in the growth investment outlook;

■ a positive recent trading statement; and

■ an absence of heavy directors' selling and some recent directors' buying.

"MFM Slater Growth is an attractive option for equity investors looking for a focused portfolio of UK companies selected from the bottom up," says Daniel Vaughan, a fund analyst at Morningstar.

The fund has an experienced lead manager, Mark Slater, who co-founded Slater Investments in 1994, and is supported by three analysts. They have significant investments in the fund aligning their interests with those of shareholders.

The 'P' share class can be picked up on fund platforms for a reasonable charge of 0.81 per cent, although you have to pay platform fees on top of this. The fund invests for the long term and has a low turnover rate, so trading charges eat less into returns.

MFM Slater Growth typically holds only between 25 and 50 shares, which means its performance is very different from the FTSE All-Share, resulting in underperformance as well as outperformance, such as in 2012. The heavy weighting to small-caps also means the fund can be very volatile.

Assets are focused on the top 15 holdings, which adds to concentration risk.

But if you have a high-risk appetite, and can tolerate volatility, then MFM Slater Growth looks like a good option for strong long-term growth. Buy.

Source: Morningstar & *Slater Investments

Performance

Source: Morningstar, as at 10 July 2015

Top 10 holdings, as at 31 May 2015

Top 10 sectors (%)