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Marlborough Special Situations - are smaller companies heading for a fall?

Investments can go down as well as up so there is always a danger that you could get back less than you invest. Nothing here is personalised advice, if unsure you should seek advice.
  • The managers expect low interest rates to support continued merger and acquisition activity
  • Fevertree once again among the fund’s best performing investments
  • We continue to believe the team are among the best UK smaller company investors available and the fund remains on the Wealth 150 list of our favourite funds across the major sectors

Our view

Eustace Santa Barbara joined Giles Hargreave as co-manager of the Marlborough Special Situations Fund in September 2014. Since this time, with the support of Giles Hargreave and the wider Hargreave Hale team, he has gradually taken on more responsibility for the portfolio, and now shares equal responsibility for the fund. We believe the experience and talent at Hargreave Hale sets the team apart from their peers and we have faith in them to deliver superior returns for investors over the long term. The fund remains on the Wealth 150 list of our favourite funds.


Giles Hargreave has managed this fund for almost 20 years. Over this time, performance has been exceptional, with the fund returning 2,837.7% compared with 425.2%* for the average fund in the sector. Our analysis attributes this outperformance to the manager’s strong stock selection, which has added considerable value for investors over time. Since Eustace Santa Barbara joined the team, the fund has returned 56.3%, compared with 43.4%* for the sector, with returns over this period also led by strong stock selection. Past performance is not a guide to future returns.

Annual Percentage Growth
July 12 -
July 13
July 13 -
July 14
July 14 -
July 15
July 15 -
July 16
July 16 -
July 17
Marlborough Special Situations 27.89 17.83 18.80 4.00 29.83
FTSE Small Cap 38.51 11.30 9.56 4.41 22.81
IA UK Smaller Companies 31.52 14.50 12.83 -0.99 30.82

Past performance is not a guide to future returns. Source: Lipper IM * to 31/07/17

Outlook & portfolio review

Share prices of many smaller companies are at all-time highs, which has led some investors to question the sustainability of prices. If companies fail to deliver the earnings growth that is expected of them, share prices could fall sharply. While the managers believe this certainly applies to the share prices of some smaller companies, they feel many of the companies they choose to invest in justify a higher rating. Investors should note smaller companies are more prone to failure than their larger counterparts and all investments will fluctuate in value.

Fevertree Drinks has climbed 1,216.7% since it first listed on the stock market in November 2014. The managers bought shares at the initial public offering (IPO) and it has been the fund’s best performing investment since. The position has halved in terms of the number of shares the fund owns, as the managers have taken profits over time. However, they don’t wish to reduce the fund’s exposure any further as they feel the high share price is justified. Indeed, the business has started to explore the option of expanding their brand, to include mixers for dark spirits such as rum and whisky, which the managers expect to drive growth, and subsequently the share price, higher still; although there are no guarantees.

Many companies have taken advantage of low interest rates in recent years to fund the acquisition of smaller firms. This has benefitted the fund in two ways. Firstly, a number of investments in the fund have received take-over bids, which has boosted performance as they tend to be in excess of a company’s prevailing share price. Secondly, the fund invests in a number of companies that have expanded rapidly through the purchase of smaller competitors. The fund’s investment in Victoria plc, a flooring manufacturer and distributor, is an example of a company that has done this to great success. The managers expect mergers and acquisitions to continue as sterling weakness increases the attractiveness of UK companies to overseas buyers.

Find out more about this fund including how to invest

Please read the key features/key investor information document in addition to the information above.

Important information - Please remember the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. This article is provided to help you make your own investment decisions, it is not advice. If you are unsure of the suitability of an investment for your circumstances please seek advice. No news or research item is a personal recommendation to deal.

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