- Richard Bullas is an experienced UK small and medium-sized company investor
- The fund’s high conviction approach centres around company quality and valuation
- Bullas invests in mid cap stocks, often considered the ‘sweet spot’ between company growth potential and maturity
- This fund features on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential
How it fits in a portfolio
FTF Franklin UK Mid Cap aims to deliver income and capital growth over the longer term. The managers only invest in medium-sized companies within the FTSE 250, often considered the ‘sweet spot’ between company growth potential and maturity. It’s home to some great domestic companies and also those that do business internationally. This fund could be a useful option for the UK portion of an adventurous portfolio or work well alongside funds investing in large or higher-risk smaller UK businesses to achieve broader UK stock market exposure.
Richard Bullas has been co-manager of the FTF Franklin UK Mid Cap fund since 2013, and took over as lead manager of the fund in July 2020. He began his career working in accountancy audit before moving to Aviva as an analyst. He joined Rensburg Fund Management, which later became Franklin Templeton Fund Management, in 2000. Bullas became a fund manager in 2006 and has covered the UK smaller companies sector for most of that time.
Bullas is also involved in the Franklin UK Smaller Companies and Franklin UK Managers Focus funds. There are some similarities between these funds, and we think he’s able to comfortably manage his commitment to each portfolio.
Bullas has the support of a strong team at Franklin and they collectively have a lot of experience. We believe the fund is in good hands under Bullas. He has a strong track record investing in smaller companies, and we believe investing in medium-sized companies is a natural and achievable extension of his abilities.
Bullas and his team hunt for businesses with strong growth potential. Their process centres around two key pillars – quality and valuation. This sets a high bar for companies to make it into the fund and aims to mitigate three key risks: business, financial and management.
In terms of quality, the team looks for companies whose earnings are sustainable over the long run, such as those with brand power and hard-to-replicate advantages. Management teams are essential to a company’s success so they must have a strong track record of delivery and be incentivised appropriately. These companies also need to be financially robust, so they look for companies that are highly cash generative, and avoid those with lots of debt.
Once the team has evaluated a company’s quality, they assess how attractively it’s valued. As long-term investors they want to understand the stock’s upside and downside potential. The team typically forecast the potential share price returns over the next three to five years. If the share price is attractive enough to benefit from these returns, they will invest.
This fund invests in a relatively small number of companies, typically between 30-50. There are currently 35 stocks owned in the fund. This means each one has the potential to make a meaningful difference to performance, both positively and negatively, which can increase risk. Companies are sold if they graduate into the larger FTSE 100 by growing in value. While the fund mostly invests in medium-sized companies, Bullas can also invest in smaller companies within the index, which also adds risk. The managers have the flexibility to invest up to 20% of the fund overseas, although they’re currently investing the fund solely in UK listed businesses.
Bullas has taken the opportunity to use share price weakness in the second quarter of the year to top up positions in existing holdings, such as precision instrumentation group Spectris and telecoms testing company Spirent. In recent months, Bullas has also sold the fund’s position in speciality insurer Lancashire Holdings over concerns about the growing uncertainty stemming from the war in Ukraine and the potential insurance liabilities.
In this tough environment, Bullas thinks it’s prudent to avoid overleveraged and speculative areas of the market. He’s focusing on investing in companies that can use their balance sheet strength to grow their competitive positions and emerge from this part of the cycle in a better position.
Bullas and the team are based in Leeds. They have a collegiate culture, with lots of collaboration and support for each other. The team is part of Martin Currie, an asset manager within the wider Franklin Templeton group, so they enjoy the resources that come with being part of a large organisation. The Leeds office operates like a boutique fund group though, as the managers are given the freedom to invest largely without interference.
Franklin Templeton was previously a laggard on ESG integration. But since its integration with Martin Currie, the group has made significant strides forward, in part because of its ability to leverage Martin Currie’s expertise. Responsibility for carrying out ESG analysis sits with individual analysts and portfolio managers, and all stock research must consider the material and relevant governance, social and environmental factors that could impact a company’s ability to generate sustainable returns.
All investment teams have access to a dedicated ESG team, which tracks emerging themes, shares industry best practice and conducts independent analysis and there is a firm-wide commitment to avoid controversial weapons.
Whilst this is not a dedicated ESG fund, the managers are mindful of these considerations throughout their investment process. They’ve always assessed a company’s governance and over time they’ve become more aware of environmental and social factors. The manager and his team are prepared to engage directly with company management on material ESG topics where necessary.
The fund usually has an annual ongoing charge of 0.82%, but we’ve negotiated a 0.20% saving so it’s available to HL clients for 0.62%. This is one of the lowest charges among actively-managed UK mid cap funds. The HL platform fee of up to 0.45% per year also applies.
The fund has performed well since Bullas became co-manager of the fund in September 2013. From then until the end of July 2022, the fund has delivered returns of 76.19%*, compared with 61.55% for the FTSE 250 ex investment trust index. Past performance isn't a guide to the future.
Over the last 12 months the fund hasn’t fared as well. It’s returned -13.08% to investors, losing more than the FTSE 250 ex Investment Trust index return of -11.31%. Our analysis suggests that positions in financials and consumer stocks have hurt performance. Not all stocks fell in value though, support services provider Serco and science and engineering company QinetiQ were among the largest positive contributors to performance.
Over the last year, larger UK companies performed better than their medium sized peers. This can be in part attributed to higher demand for more defensive areas of the market and an aversion to areas of the market seen as higher risk, like mid-cap stocks. The FTSE 100 index of larger companies has higher weightings to sectors that have been beneficiaries of the current environment, like oil & gas and health care companies.
We expect the fund to perform better than the index in a rising market, but to fall further during downturns. This performance profile has resulted in the fund outperforming the index over Bullas’ tenure as manager. We think he has the experience, skill and team support to deliver good long-term returns to patient investors, although there are no guarantees.
|Annual percentage growth|
| Jul 17 -
| Jul 18 -
| Jul 19 -
| Jul 20 -
| Jul 21 -
|FTF Franklin UK Mid Cap||11.01%||-0.31%||-11.89%||37.82%||-13.08%|
|FTSE 250 ex Investment Trusts||8.39%||-4.98%||-15.10%||42.85%||-11.31%|
Past performance is not a guide to the future. Source: *Lipper IM to 31/07/2022.
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