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Boost returns with Marlborough UK Micro Cap Growth

Marlborough UK Micro Cap Growth offers access to small- and micro-cap companies that have the potential to grow strongly
February 16, 2017

Despite recent investor preference for larger companies with overseas earnings, over the long term smaller companies tend to outperform larger companies. For example, the Investment Association (IA) UK Smaller Companies sector average was 95.1 per cent over five years, beating the IA UK All Companies sector average of 61.2 per cent. And a good fund to tap in to that smaller company growth could be Marlborough UK Micro-Cap Growth (GB00B8F8YX59).

IC TIP: Buy at 602.6pp
Tip style
Growth
Risk rating
High
Timescale
Long Term
Bull points
  • Good long-term performance
  • Experienced manager
  • Invests in small companies
  • Well diversified
Bear points
  • Short-term volatility

Over three and five years, this IC Top 100 Fund has beaten both the IA UK Smaller Companies sector average and the FTSE Small Cap Excluding Investment Trusts index. It delivered 37 per cent over three years and 125.8 over five years, compared with 24.1 per cent and 120.4 per cent for the index over those periods.

The fund invests primarily in UK companies with a market capitalisation of £250m or less at the time of purchase, and a considerable proportion of its portfolio is invested in smaller companies with a market capitalisation of less than £150m at the time of purchase. Currently, the fund has about three-quarters of its portfolio in companies with a market capitalisation under £250m and one-quarter in companies with a market capitalisation of between £250m and £1bn.

As smaller companies tend to be less well researched than larger ones, it is often easier for active managers to come across hidden gems. Marlborough UK Micro-Cap Growth's manager, Giles Hargreave, is an experienced small-cap investor who has demonstrated sustained stockpicking skill and an ability to beat the market over the long term.

According to FE Trustnet data, Mr Hargreave delivered a cumulative total return of 152 per cent over 10 years, compared with 62.1 per cent for a composite of his peer group. Mr Hargreave has managed the fund since its launch in October 2004, and since 2012 has been supported by co-manager Guy Feld, who has 20 years of small-cap experience. Mr Feld specialises in technology stocks, which typically make up around a quarter of the fund's assets.

The managers invest in companies with disruptive technologies or that are leaders in niche markets. They typically invest very small amounts in companies and add more to stocks that perform well. As a result, the fund has a highly diversified portfolio of 267 holdings, including stocks listed on the Alternative Investment Market (Aim).

In December, the fund topped up its positions in audio interface designer and manufacturer Focusrite (TUNE), voucher and pre-paid giftcard business Park (PKG), veterinary group CVS (CVSG) and online estate agent Purplebricks (PURP).

Research company FundCalibre rates Marlborough UK Micro-Cap Growth as 'Elite' - a stamp of approval that it bestows on what it considers to be the top investment funds, where it believes the managers can consistently deliver positive value over time.

"There are more than eight investment professionals working on this fund," says Darius McDermott, managing director at FundCalibre. "It's one of the best resourced smaller company funds. And the managers are also very experienced. Long-term performance has also been excellent."

However, investing in smaller companies is riskier than investing in large companies. And over one year Marlborough UK Micro-Cap Growth has not beaten the FTSE Small Cap Ex Investment Trusts index.

"Whenever you're buying smaller companies, there are liquidity risks," explains Mr McDermott. "Smaller companies can also be more volatile."

But he also points out that over longer periods smaller companies outperform - as has this fund. So if you can tolerate some short-term volatility, Marlborough UK Micro-Cap Growth looks like a good way to tap into small-cap growth and make strong returns over the long term. EA

 

Marlborough UK Micro Cap Growth (GB00B8F8YX59)
Price:602.6p3-yr mean return:11.55%
IA Sector:UK Smaller Companies3-yr Sharpe ratio:0.84
Fund Type:Unit trust3-yr standard deviation:12.49%
Market Cap:£708.6mYield:0.74%
No of Holdings:267*Ongoing Charge:0.80%
Set-up date:4/10/04More details:marlboroughfunds.com
Manager start date:Giles Hargreave: 4/10/04, Guy Feld: 1/02/12  

Source: Morningstar & *Marlborough Fund Managers

 

Performance

Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Marlborough UK Micro Cap Growth 28.337.0125.8
FTSE Small Cap Ex Invest Trust index28.524.1120.4
IA UK Smaller Companies sector average24.125.996.9

Source: Morningstar, as at 10/02/17

 

Top 10 holdings as at 3/01/2017 (%)

Quixant 1.8
Fevertree Drinks 1.7
Next Fifteen Communications 1.5
Accesso Technology1.5
Clinigen1.4
Keywords Studios 1.2
Severfield1.2
Smart Metering Systems 1.2
Coats1.2
Clipper Logistics 1.1

Source: Marlborough Fund Managers

 

Sector breakdown as at 3/01/2017 (%)

Industrials25.4
Technology 22.5
Consumer services 17.0
Consumer goods 10.9
Healthcare 8.9
Financials6.6
Basic materials 2.6
Oil & gas 2.1
Telecommunications 1.3
Utilities 1.2
Non-classified 0.1
Alternative trading strategies 0.0
Cash & equivalents 1.4

Source: Marlborough Fund Managers

 

IC Tip rating

Tip styleGrowth
Risk ratingHigh
TimescaleLong term