Marlborough UK Micro-Cap Growth – a good year for smaller companies

• This fund is managed by some of the UK’s most experienced smaller companies investors
• They have achieved impressive levels of performance over the long term
• The fund maintains a bias to technology-related companies

Our view

The Marlborough UK Micro-Cap Growth Fund is an excellent choice for exposure to some of the UK’s smallest companies, in our view. It is managed by Giles Hargreave, one of the UK’s longest-standing smaller companies investors, and Guy Feld.

The managers have demonstrated an ability to pick and invest in some of the UK’s most innovative and successful smaller companies. Not all companies will succeed, however, so the risk of investing in smaller businesses, rather than larger and more-established firms, tends to be greater.

The fund has delivered impressive returns for investors since its launch in 2004. We continue to believe the team at Marlborough have the skills and resources to identify companies with excellent growth prospects. There are no guarantees, however, and past performance should not be used as a guide to future returns.

The fund remains on the Wealth 150+ list of our favourite funds across the major sectors.

A strong year for UK smaller companies

With Brexit negotiations and uncertainty on the horizon, many investors believed smaller businesses were in for a bumpy ride in 2017. This is because small companies typically carry out most of their business within the UK and have less exposure to global markets than larger firms.

Yet the shares of many UK smaller companies delivered exceptional returns over the past year, and Marlborough UK Micro-Cap Growth achieved an even greater return than the broader market. We believe Giles Hargreave and Guy Feld’s focus on the prospects for individual companies, rather than broader economic and political issues, has proven a favourable approach over both the short and longer term.

Marlborough UK Micro-Cap Growth - one year performance

Past performance is not a guide to future returns. Source: Lipper IM to 31/12/2017

Fund manager views

The managers are cautious in their outlook on consumption within the UK. This is due to the threat of rising inflation, which erodes consumers’ spending power, and political uncertainty, which may lead people to want to save rather than spend. They have avoided companies they think could suffer, particularly those that rely on customers making big, high-value purchases.

Giles Hargreave and Guy Feld instead favour companies that offer a unique product or service, or a niche brand, which puts them ahead of the competition. They like companies that could benefit from developments in technology. One fifth of the fund is currently invested in the technology sector, although there are other companies in the portfolio that also use technology to their advantage.

Recent additions to the fund include Boku, which allows customers to charge purchases to their mobile phone bill. The managers have also recently added to existing investments in which their conviction has grown over time. For example, they increased their investment in Focusrite after the company announced a good set of results and following an encouraging meeting with company management. The company is a market-leading manufacturer of music and audio products, including studio equipment.

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