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Neptune UK Mid Cap Fund - portfolio review

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.

Mark Martin has been at the helm of the Neptune UK Mid Cap Fund, which primarily focuses on medium-sized companies, since its launch in December 2008. It is a concentrated portfolio of 36 holdings at present, meaning each can have a significant impact on returns, although it does increase the level of risk.

Portfolio Construction

The fund is focused towards undervalued and cash-generative sectors and companies, which have the support of long-term growth drivers in the manager's view.

In constructing the portfolio, Mark Martin invests in three themes. By having at least 20% of the portfolio invested in each of the three themes of economic recovery, structural growth and corporate turnarounds, the manager believes this could help the fund perform well across the business cycle, as well as lowering its volatility compared with the wider market. The fund also has the flexibility to invest in higher-risk smaller companies should the manager see fit.

Theme Current weight Explanation Stock example
Structural growth 39.8% These companies could benefit from long-term end-market growth drivers, resulting in sustainable profit margins and earnings growth. Genus operates in the animal genetics arena with the aim of improving the productivity of livestock herds. The manager expects the company to benefit from growing protein demand in emerging markets.
Corporate turnaround 29.4% Companies with a poor performance history, but with a change of management or new strategic plan. These businesses are often undervalued with significant potential upside from self-help initiatives. Carpetright is currently the fund's largest holding. The company recently appointed a new management team and is cutting back its number of sites, which should reduce its fixed costs. It is also introducing new customer initiatives, including an interest-free credit offering.
Economic recovery 30.2% These businesses could benefit from shorter-term economic tailwinds, while their earnings tend to be more sensitive to fluctuations in the economic cycle. Tullett Prebon, a diversified interdealer broker, could see its transaction volumes improve as interest rates start to rise in the US and UK, as well as from increasing levels of bond issuance in Europe (which could result from the introduction of the ECB's bond-buying programmes).


Mark Martin believes sterling weakness could benefit UK companies with strong dollar earnings and lead to an increase in merger and acquisition (M&A) activity, with UK firms becoming attractive targets to US buyers. According to the manager, the healthcare sector is a major beneficiary of a strong US dollar, and also enjoyed M&A activity last year. He expects UK-listed healthcare stocks to perform well throughout the remainder of 2015 and the fund maintains a 25% weighting in the sector. In addition to Genus, the fund also has holdings in Vectura and Dechra Pharmaceuticals.


While the fund struggled in its first few years, longer-term performance has been strong. Since launch the fund has delivered growth of 311.2%* against 257.1% for the FTSE 250 Mid (ex. IT) Index, although please remember past performance is not a guide to future returns.

Annual percentage growth
May 10 -
May 11
May 11 -
May 12
May 12 -
May 13
May 13 -
May 14
May 14 -
May 15
Neptune UK Mid Cap Fund 18.7 14.0% 33.7% 19.3% 18.4%
FTSE 250 Mid (ex. IT) 21.6% -0.7% 27.3% 17.6% 12.9%

Past performance is not a guide to future returns. Source: Lipper IM* to 01/05/2015

The fund has also been successful in achieving its objective of exhibiting less volatility than the index and its medium-sized company peers. Furthermore, our analysis shows the fund has tended to hold up relatively well in a falling market, although it has tended to underperform the index in a rapidly rising market.

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Our view on this fund

Mark Martin's track record has so far been encouraging. He has delivered a strong performance, which can largely be attributed to stock selection according to our analysis, while at the same time limiting the volatility of the portfolio. Overall we view this as an attractive profile.

The fund does not currently feature on the Wealth 150 list of our favourite funds across the major sectors. We currently favour other managers with a focus on medium-sized companies, who have longer track records and the support of more established UK teams. That said, we will continue to monitor the fund and inform investors if our views change.

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.

The value of investments can go down as well as up, this means you could get back less than you invested. Therefore all investments should be regarded with a long term view. No news or research item is a personal recommendation to deal. If you are unsure about the suitability of an investment please contact us for advice.
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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