Franklin UK Mid Cap - stock picking and box ticking
Jonathon Curtis | Tue 12 March 2019
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- Paul Spencer invests in medium-sized companies in the FTSE 250 index
- The fund kept pace with the benchmark over the past year and is ahead over the long term
- Half the company earnings in the fund come from overseas
Our view:
Medium-sized companies are often seen as the investing ‘sweet spot’. They’re large enough to avoid some of the risks faced by smaller companies. Yet they’re small enough to have plenty of room to grow.
We think there’s also a fund manager sweet spot – a long and successful track record, a clear and simple investment approach and a strong team behind them. Paul Spencer ticks all those boxes.
He’s managed Franklin UK Mid Cap for the past 13 years and done a good job in that time. He’s delivered strong long-term performance by investing in a small number of medium-sized companies he thinks have healthy finances, and can be bought at a share price with plenty of room to grow. His past performance isn’t a guide to the future returns.
We think the fund’s an excellent choice for investing in some less well-known UK companies with lots of growth potential. We expect Spencer to produce excellent results for investors, though there are no guarantees. The fund deserves its place on the Wealth 50 list of our favourite funds.
How’s the fund performed?
The fund's grown 310.4%* since Spencer’s been at the helm. Its benchmark, the FTSE 250 index, grew 198.9% over the same time. That’s not an indication of how they’ll perform in the future though.
Over the past year markets have been more volatile, though the fund still managed to keep up with the benchmark.
Franklin UK Mid Cap performance during Paul Spencer's tenure
Past performance is not a guide to the future. Source: Lipper IM *to 28/02/2018
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Feb 14 -
Feb 15 |
Feb 15 -
Feb 16 |
Feb 16 -
Feb 17 |
Feb 17 -
Feb 18 |
Feb 18 -
Feb 19 |
|
| Franklin UK Mid Cap | 3.6% | -0.6% | 13.1% | 16.0% | 0.2% |
| FTSE 250 | 6.1% | -1.4% | 16.2% | 7.7% | 0.2% |
Past performance is not a guide to the future. Source: Lipper IM to 28/02/2018
Veterinary pharmaceuticals producer Dechra and industrial software developer Aveva performed particularly well. The manager's recently sold the latter’s shares because he doesn't think they offer as much growth potential as they used to.
Some of the fund’s investments grew large enough to join the FTSE 100 index of the UK's biggest companies. They include packaging business DS Smith, insurance provider Hiscox and online gambling operator GVC Holdings. Spencer only invests in companies in the FTSE 250 index so he sold them after making a profit.
Several companies in the fund were also taken over by larger firms last year: owner of Zoopla property website ZPG, electronics business Laird, and events organiser UBM. Spencer was already invested in each of these companies and profited from these sales.
Some companies in the fund have struggled recently though. Superdry suffered because demand for its clothing fell during 2018’s warm summer. It also didn’t introduce many new product ranges. Its shares fell so much that the company was no longer big enough to be in the FTSE 250 index, so Spencer sold them.
Jupiter Asset Management also did poorly. The group manages a number of funds, but some clients withdrew their money last year because of worries about weaker performance. The manager's kept the shares though as he expects the business to improve.
Spencer currently invests in around 30 to 40 companies. That’s a fairly small number, so each one has the potential to make a big impact on the fund’s performance. It’s a higher-risk approach though.
Outlook
There's a lot of uncertainty in both the UK and global economy at the moment. Once this stabilises, Spencer will consider adding more companies to the fund. But for now he's happy with the way it's invested.
Brexit is one of the most prominent concerns. To limit the impact of a negative outcome the manager's invested in companies that make money both in the UK and abroad. On average, half their sales come from overseas.
This means the fund could miss out on some gains if domestically focused businesses do better. But the reverse is also true, and Spencer would prefer to keep the fund more diverse at the moment.