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AIM for the best with Marlborough UK Micro Cap Growth

Smaller companies and AIM shares look set to continue performing well, and Marlborough UK Micro Cap Growth is a good way to get exposure to the best ones.

Smaller companies had a strong run in 2013 with UK Smaller Companies funds doing particularly well, making them the top performing Investment Management Association (IMA) sector over 2013.

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If this pattern of recovery continues with consumer, business and investor confidence improving, Richard Troue, head of VCT Research at Hargreaves Lansdown, sees no reason why smaller companies can't continue to perform well in 2014. And analysts at FundExpert say that smaller companies valuations "are certainly less attractive than a year ago, but still only around their historical averages. So upside potential remains."

443.83p
Tip style
Income
Risk rating
Low
Timescale
Long Term
Bull points
  • Strong performance
  • Reasonable charges
  • Experienced fund manager
  • AIM exposure
Bear points
  • Short-term volatility

IC TIP RATING

Tip style: GROWTH

Risk rating: HIGH

Timescale: LONG TERM

If you also continue to buy into the argument for smaller companies then you could do worse than IC Top 100 Fund Marlborough UK Micro Cap Growth (GB00B02TPH60), which we tipped in May 2012 for reasons including strong performance, reasonable charges and experienced fund managers.

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The arguments for this fund still stand: it has outperformed the IMA UK Smaller Companies sector average by a good deal over one, three and five years, and beaten the FTSE Small Cap (Ex Invest) Trust Index over three and five.

While many smaller companies funds are in effect mid-cap funds, Marlborough UK Micro Cap Growth has more than three quarters of its assets in companies with a market cap smaller than £250m, and 10 per cent in ones with a market cap of £250m to £1bn.

Marlborough UK Micro Cap Growth also offers significant exposure to the Alternative Investment Market (AIM), with around 75 per cent of its assets invested in this. This market did well last year for reasons including the ability to hold AIM shares in individual savings accounts (Isas) since last August. The market may receive a further boost because from April the government is scrapping stamp duty on AIM share trades.

"We continue to see strong long-term potential in quality AIM stocks of the type we hold in the fund," says Giles Hargreave, co-manager of Marlborough UK Micro Cap Growth. "We also expect AIM stocks to continue to benefit from growing investor interest in light of their increasing tax advantages."

AIM is a high risk and volatile market, however, so to do well it is crucial to pick the right shares. The managers of Marlborough UK Micro Cap Growth have proven they can do this.

See more funds which give exposure to AIM

The fund is also a good way to get exposure to technology companies as it has more than a quarter of its assets in this sector, which is not a prominent part of mainstream UK indices.

Over one year the fund has not beaten the FTSE Small Cap (Ex Investment Trust) Index. However, this is only by a small margin and reasons for this include the fund's focus on AIM which has lagged the FTSE Smaller Companies index over the last 12 months. The fund's goal is also a total return of capital and income in excess of the FTSE Small Cap ex Investment Companies Index over the medium to long term, and smaller companies in general are volatile.

"There are inevitably periods where active managers lag the market as they look to do something different from it," adds Adrian Lowcock, senior investment manager at Hargreaves Lansdown. "Investors should focus on the longer term performance as this is much more important. Giles Hargreave is an exceptional stock picker who is adept at managing a portfolio of smaller company shares while managing the risks effectively. The long term performance is impressive."

And year to date in 2014 the fund's performance is 8.1 per cent compared with a return of 6.25 per cent for the FTSE Small Cap (ex Investment Trust) Index.

So if you can tolerate some short-term volatility and have a long-term investment horizon, this long-term strong performer is still a Buy.

MARLBOROUGH UK MICRO-CAP GROWTH (GB00B02TPH60)

PRICE443.83pMEAN RETURN21.90%
IMA SECTORUK Smaller CompaniesSTANDARD DEVIATION11.48%
FUND TYPE Unit trustPORTFOLIO TURNOVER RATE42.46%*
FUND SIZE£316.44mONGOING CHARGE1.54%
No OF HOLDINGS227*YIELD0.00%
SET UP DATE04-Oct-04MINIMUM INVESTMENT£1,000
MANAGER START DATE04/10/2004/01/02/2012MORE DETAILS www.marlboroughfunds.com

Source: Mornignstar, *Marlborough.

 1 year cumulative total return (%)3 year cumulative total return (%)5 year cumulative total return (%)
Marlborough UK Micro Cap Growth38.02877.752292.631
IMA UK Smaller Companies sector average32.94658.563231.000
FTSE Small Cap Ex Invest Trust TR GBP40.53074.070248.633
FTSE AIM 100 TR GBP24.853-1.432133.840

Morningstar as at 28 February 2014

Top ten holdings as at 3 February 2014

 Utilitywise1.9
Eckoh1.8
Optimal Payment1.6
Cello Group1.4
Restore1.4
Advanced Computer Software Group 1.2
Energy Assets Group1.2
CML Microsystems1.2
KBC Advanced Technologies1.1
SQS Software Quality Systems AG1.1

Sector breakdown

Technology26.40
Industrials 22.90
Consumer Services 15.10
Oil and Gas7.8
Financials 6.7
Health Care5.7
Consumer Goods2.1
Basic Materials1
Bond, cash and equivalents10.9
Other1.40