The recent performance of smaller companies has been marred by the UK’s decision to leave the European Union as investors have favoured the relative safety of larger businesses. Giles Hargreave and Guy Feld, managers of the Marlborough UK Micro Cap Growth Fund, believe this is a temporary setback which does not reflect the longer term prospects of the businesses held in the fund. While cognisant the UK has entered unchartered waters, they feel Brexit will not cause companies with an innovative product, a compelling business strategy, or outstanding management (or all three) to become bad businesses overnight.
The managers look to mitigate the impact of adverse political or economic factors on the portfolio by holding a wide variety of businesses across a number of sectors, albeit the managers currently have a bias to the technology sector. Investments include software business Gresham Computing, and Bango, which develops the technology to enable mobile phone users to make payments for digital content and media on smartphones and tablets.
Elsewhere, new investments include Autins Group, which specialises in acoustic and thermal insulation solutions; and Hollywood Bowl, a cash generative ten-pin bowling company which holds a market leading position in the UK, with plans to improve their existing, and develop new, sites. The managers chose to back both businesses at their IPO (Initial Public Offering).
A slowing UK economy could negatively impact smaller companies as they tend to be more domestically-focused and, as many are in the early stages of their growth, few pay the income investors seek. Smaller companies have therefore been shunned over the past few months in favour of higher-yielding larger firms and the fund’s recent performance has been muted as a result.
However, we view recent weakness as an opportunity to gain access to this area of the market at reduced prices. Since launch, the fund has returned 464.8%, outperforming the FTSE Small Cap Index by 249.4%*. The strong long term performance can be attributed to the managers’ strong stock selection, according to our analysis, although past performance is not a guide to the future.
|Annual Percentage Growth|
Nov 11 -
Nov 12 -
Nov 13 -
Nov 14 -
Nov 15 -
|Marlborough UK Micro-Cap Growth||19.06||34.89||10.25||16.15||7.17|
|IA UK Smaller Companies||17.68||33.48||4.4||15.23||1.46|
Source: Lipper IM *to 01/11/16
Past performance is not a guide to future returns.
This fund provides investors with an excellent opportunity to access the exciting long-term growth potential of some of the UK's smallest businesses, although investment in this area is higher risk. Giles Hargreave and Guy Feld, with the support of the wider team, are well equipped to provide investors with good long term returns, in our view. The fund maintains its place on the Wealth 150+ list of our favourite funds across the major sectors.