Another year, another surge in assets for the UK’s biggest funds. In September 2020 we noted that Fundsmith Equity (GB00B4Q5X527) had more than £20bn in assets, with Scottish Mortgage Investment Trust (SMT) commanding a market capitalisation in excess of £14bn. A little over a year later, Terry Smith’s flagship fund now has more than £27bn in assets and Scottish Mortgage has swelled to more than £21bn.
Greater fund size does confer advantages, from economies of scale and potentially lower fees to greater clout with investee companies. But taking on substantial assets can also put a brake on performance for some portfolios. Many funds have enjoyed their best returns while they are still small and nimble, with a manager focused on producing the best returns rather than managing substantial assets.
With this in mind, we have again (see September 2020 and a year before that) sought to identify smaller funds with outstanding levels of risk-adjusted outperformance (also known as the information ratio). These funds could give portfolios an edge and lessen your reliance on bigger names.