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In the Doghouse: Franklin UK Select Growth Fund

Franklin UK Select Growth Fund's performance has suffered over the past five years, as its focus has shifted away from small- and mid-caps to larger companies.
January 11, 2013

Franklin UK Select Growth Fund (GB00B7F47W60) has been removed from broker Hargreaves Lansdown's list of 150 favoured funds following poor performance over the past few years. The fund is in the third quartile of the UK All Companies sector over three and five years, and drops to the fourth quartile over one. It also fails to beat its benchmark, the FTSE All-Share, over these periods.

This is a fall from grace for a fund which had a strong performance until around 2007, and since launch in 2001 has grown 230.15 per cent against 91.95 per cent for the FTSE All-Share and 87.53 per cent for the average UK All Companies fund.

The decline in performance has coincided with a gradual shift away from small- and medium-sized companies into larger companies. "The fund's portfolio has become progressively more similar to that of an index tracker," says Rob Morgan, investment analyst at Hargreaves Lansdown. "We expect the fund to deliver returns broadly in line with the UK market."

However, Mark Hall, manager of Franklin UK Select Growth, says: "Since the onset of the global financial crisis, the focus of the fund had largely been on high-quality companies with strong balance sheets and management teams that could weather a prolonged period of uncertainty. However, I now believe that some of the more serious tail risks for the equity market have been eliminated. We are therefore already increasing the active money within the portfolio, reducing exposure to mega-cap companies and concentrating the number of holdings. This trend is expected to continue over the next few months as we once again put more emphasis on bottom-up stock selection within the fund.''

Mr Morgan at Hargreaves Lansdown says he sees no reason for existing investors to sell the fund so long as they are comfortable with this approach, but investors wanting a more dynamic fund with greater exposure to smaller- and medium-sized companies should consider alternatives.