Marlborough UK Micro-Cap Growth - looking on the bright side
Jonathon Curtis | Thu 21 March 2019
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- The managers think recent market volatility was a good chance to invest in companies at lower prices
- The fund fell over the past 12 months but did better than the benchmark. The managers' long-term record is impressive
- They're optimistic about the future for UK smaller companies
Our view
Smaller companies are often overlooked by investors. But among them you can find some exciting and pioneering businesses. And their growth potential is higher than larger companies. That comes with higher risk though, as they're more volatile and more likely to go bust.
With so many companies doing new and different things in this part of the market, thorough research is vital. That’s where the benefit of a specialist fund manager comes in. In the UK Smaller Companies sector there are few more highly-rated than Giles Hargreave.
He manages Marlborough UK Micro Cap Growth along with co-manager Guy Feld. They search the length and breadth of the UK smaller companies landscape to find businesses they think can grow rapidly by dominating their niche or bringing something new and innovative to the market. It’s no easy task with hundreds of companies to consider. But the managers are experts in their field and they’re supported by an experienced team.
We think the team is one of the strongest in the sector. They've delivered exceptional long-term performance and deserve their place on the Wealth 50 list of our favourite funds. We believe they’re talented enough to produce excellent long-term returns, though there are no guarantees.
How’s the fund performed?
The fund’s performance has been nothing short of superb since it launched in 2004. It’s grown 644.4%* compared with 165.8% for the FTSE Small Cap index. That’s not an indication of future performance though.
The fund fell 4.8% over the past year but that’s less than the benchmark, which fell 5.6%. Some of the fund’s companies with high growth expectations were hit hard during the market volatility at the end of 2018. Many of these were technology companies such as virtual queueing provider Accesso and video game developer Keyword Studios.
Other companies performed strongly though. Future, a multi-platform media company, is currently the fund’s largest investment. It buys traditional print media companies and converts them to a digital format. It’s worked well and led to big share price gains. Creo Medical, a medical device company, recently tripled its share price. It’s developing patented technology to offer faster surgery and quicker recovery times.
Fund performance since launch
Past performance is not a guide to the future. Source: Lipper IM *to 28/02/2019
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Feb 14 -
Feb 15 |
Feb 15 -
Feb 16 |
Feb 16 -
Feb 17 |
Feb 17 -
Feb 18 |
Feb 18 -
Feb 19 |
|
| Marlborough UK Micro-Cap Growth | -3.2% | 8.3% | 28.1% | 23.1% | -4.8% |
| FTSE Small Cap ex investment trusts | -3.4% | 1.6% | 21.2% | 7.9% | -5.6% |
Past performance is not a guide to the future. Source: Lipper IM to 28/02/2018
Manager’s outlook:
After several years of strong performance, the managers think the recent setback was mainly a case of the market ‘letting off steam’. They think it's good this happens sometimes. It gives them a chance to invest in new companies or add to existing investments at more attractive share prices. This recently included financial adviser platform provider IntegraFin, smart metering company SMS, and sewing thread distributor Coats.
They’re also going to reduce the number of investments in the fund. That’s so they can focus more on the companies they’ve got higher conviction in. There'll still be lots of companies in the fund though to keep it diversified. This reduces the impact of a few companies doing badly.
Hargreave and Feld are optimistic about the future for smaller companies in the UK. They’re better value than larger companies and are expected to grow faster. Once their potential's recognised by more investors, it could boost future growth.