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How focused are the biggest small-cap funds?

When smaller companies funds reach a certain size they need to ensure good performance and liquidity continue
How focused are the biggest small-cap funds?
  • Some UK smaller companies funds command huge volumes of money
  • We look at how they maintain performance and liquidity

UK smaller companies funds have had an enviable run of performance in the past year that few mainstream equity portfolios have been able to match. But while such funds have delivered strong returns recently and in the longer term, success has brought a complication of its own. Having grown their assets and taken on new money, multiple funds in the Investment Association (IA) and Association of Investment Companies (AIC) UK Smaller Companies sectors now command hefty volumes of money. At the time of writing, 15 funds in the IA and AIC UK Smaller Companies sectors had more than £500m in assets, according to FE data and six funds had more than £1bn.

This is not necessarily a problem, but it can potentially limit the extent to which funds are able to build significant positions further down the market cap scale. And for open-ended funds, it may also mean that greater liquidity management is needed. Such funds, therefore, are more likely to hold larger companies, have higher numbers of holdings and keep some cash on the side.

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