Smaller companies funds can deliver impressive returns but Close Special Situations (GB00B14LTD15) has failed to do this in recent years. The fund has underperformed the average UK Smaller Companies fund by 43.92 per cent over the three years to 31 December 2012, according to discount broker Chelsea Financial Services.
Chelsea includes Close Special Situations Fund in its RedZone list of worst-performing funds over the last three discrete years. Each fund in this list has produced third- or fourth-quartile returns each year.
Chelsea also includes Close Special Situations in its DropZone list of funds that it recommends should be dropped from investment portfolios. DropZone funds are in the RedZone and have underperformed their sector averages by the largest amount over the cumulative three-year period to 31 December 2012. Close Special Situations has the second greatest underperformance of its sector over this period, after UBS UK Smaller Companies (GB0030209539), which we have written about in a previous Doghouse column.
Close Special Situations has struggled against its sector cumulatively, so that over one and three years it is nearly the worst performer in its sector.
However, over five years it does better so that it is in its sector's second quartile in terms of performance, beating the sector average. And while it has failed to beat its benchmark, the Numis Smaller Companies Index, over one and three years, between launch in 2006 and the end of last year it returned 60.4 per cent against 17.4 per cent for the benchmark.
The fund reports that over the last quarter of 2012 gold mining equities, more than 10 per cent of its assets, performed poorly and this held back its performance.
"Significant holdings in Emblaze (BLZ), OPG (OPG), Powerflute (POWR), Fiberweb (FWEB) and BATM (BVC) were little changed in the period despite, arguably, trading at significant discounts to their estimated intrinsic value," added Deryck Noble-Nesbitt, manager of Close Special Situations. "But I continue to believe that the portfolio contains a significant amount of value at the individual stock level and I continue to apply a pragmatic, value driven and flexible investment process to managing [investors'] capital."
