Tap into value with CF Miton UK Value Opportunities

The fund was only established in March 2013, but since then it has delivered a 64 per cent total return for investors compared with 29.6 per cent for the FTSE Small Cap index and 18.1 per cent for the average fund in the Investment Association (IA) UK All Companies sector. It is currently the best-performing fund in the IA UK All Companies sector over three years, and is among the top five over one year.

The fund's stellar performance does mean it has increased in size and its assets under management have already grown from around £200m last March to more than £835m. But it remains some way off its market capacity of £1.2bn.

The fund aims to achieve capital growth for investors by focusing on the very best value opportunities across the market. Fund managers George Godber and Georgina Hamilton take a bottom-up investment approach, analysing company balance sheets and cash-flow generation to pick stocks with solid financials whose value they believe is not yet fully appreciated by the market.

Investments are made on the basis of conviction rather than according to a benchmark. As a result, the fund looks very different to other UK funds and to the FTSE All-Share, making it a good active fund and a potential diversifier.

Currently, CF Miton UK Value Opportunities has 70 holdings and is heavily weighted towards consumer cyclical companies and industrials, two sectors that together make up close to 70 per cent of its positions.

Traditionally, the fund has had little exposure to retail UK banks, but recently added Lloyds (LLOY) to its portfolio as a result of its better than anticipated returns and capital creation.

Its largest holding is housebuilder Barratt Developments (BDEV). In the short term performance has suffered from the fund's exposure to housebuilders, but the managers claim that fundamental values remain robust and have been adding on weakness, which could boost returns if the sector re-rates.

Value investing has been out of fashion recently as investors have favoured companies with predictable earnings streams, but that looks set to change, meaning it could be time to rotate into a value manager. CF Miton UK Value Opportunities has been taking advantage of recent market crashes to hunt around for good value options.

Andy Parsons, head of investment research at The Share Centre, says: "The fund has been a favourite of mine for just under three years and one that I've continually picked out. They're a young team, but demonstrating a raft of experience and knowledge, as well as good stock-picking ability," he says.

"I remember thinking in 2013 it was unearthing what I would call tomorrow's rising stars. It's only three years old and they've done so well that they're on a lot of people's radars now, but I think they're still slightly underappreciated for what they've done in that time."

The fund is likely to suffer from greater volatility than other IA UK All Companies funds that have less exposure to small- and medium-cap companies.

But over three years the fund has been less volatile than the FTSE All-Share. Mr Parsons says it is a good option for a child junior Isa as a lower-risk holding.

The fund does have a short track record, but Mr Parsons argues that over the past three years it has demonstrated good stock-picking ability and solid outperformance.

He says: "You can't be investing across that size of the market cap spectrum and delivering such stellar returns with less volatility without really appreciating and having a regimented, diligent process because by their very nature with small and mid caps you will find volatility in there. So [the fund managers] have really demonstrated real, true stock-picking ability." Buy.

Since we wrote this tip management have announced they are leaving the fund. Mr Godber will remain at the fund for 12 months and Ms Hamilton for six months. For expert commentary on what it means for this tip see here.

Source: Morningstar, as at 4.04.16 *Miton, as at 29.02.16

Top 10 holdings

Source: Miton, as at 29/02/16

Source: Miton as at 29/02/16

Morningstar, as at 4/04/16