Marlborough Nano-Cap Growth - investing in miniature
Jonathon Curtis | Wed 17 April 2019
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- Market volatility at the end of 2018 meant the managers could invest at lower share prices
- The fund did well considering the difficult period over the past 12 months
- The managers are confident about the prospects for small UK companies
Our view
The smaller the company the more there’s room for growth. Giles Hargreave and Guy Feld, managers of Marlborough Nano-Cap Growth, invest in some of the very smallest. There’s enormous potential for them to grow rapidly. They're more volatile and more likely to go bust than larger ones though, so they’re higher risk.
There are fewer investors looking in the same area of the market as Hargreave and Feld. So there’s lots of opportunity for them to spot hidden gems. Both are seasoned smaller companies investors, so they’re skilled in knowing where to look and what to look for. They’ve also got one of the strongest teams in the sector to help them.
We think Hargreave and Feld are among the best UK smaller companies managers. They’ve honed their process over many years, have the courage to look where others don’t dare, and their long-term track record is impressive. The fund deserves its place on the Wealth 50 list of our favourite funds.
We expect their excellent performance to continue, although patience is required in this part of the market and there are no guarantees.
How’s the fund performed?
The managers’ performance has been excellent. The fund’s grown 75.5%* since it launched in October 2013. The FTSE Small Cap (excluding investment trusts) index gained 34.5% during that time. Remember past performance doesn’t indicate future returns.
Marlborough Nano-Cap Growth performance since launch
Past performance is not a guide to the future. Source: Lipper IM* to 31/03/2019
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Mar 14 -
Mar 15 |
Mar 15 -
Mar 16 |
Mar 16 -
Mar 17 |
Mar 17 -
Mar 18 |
Mar 18 -
Mar 19 |
|
| Marlborough Nano-Cap Growth | -10.5% | 10.3% | 24.6% | 21.0% | 4.8% |
| FTSE Small Cap ex investment trusts | 1.2% | 5.9% | 19.7% | 2.2% | -3.1% |
Past performance is not a guide to the future. Source: Lipper IM to 31/03/2019
Digital media company Future has performed well recently. The managers sold some of its shares, using the profits to invest in other companies they believe have great growth potential. Future’s still the fund's largest investment though.
An investment in litigation finance specialist Manolete Partners has also done well. It’s gained 164.2% since they invested in December 2018. The fund also profited when infection-control company Bioquell was taken over by US hygiene giant Ecolab.
This fund, like all funds, has had some disappointing performances too. Virtual reality headset maker EVR Holdings initially did well but its shares fell as the products didn’t live up to the hype. Brighton Pier’s lengthy refurbishment costs hit profit expectations, so Hargreave and Feld sold the company. Cancer therapeutics developer Fusion Antibodies also posted several disappointing results, causing its share price to fall sharply.
Despite this the fund managed to hold up a lot better than the broader market of UK smaller companies over the past year. And the managers saw the stock market volatility at the end of 2018 as a good thing. It meant they could invest in companies at lower shares prices than previously. This includes cloud infrastructure provider Beeks Financial, healthcare technology company Cambridge Cognition, and leak detection company Water Intelligence.
Managers’ outlook
The managers think investing in small companies will deliver better long-term results than investing in larger ones, although there’ll be more ups and downs along the way. Their growth expectations are higher and some are the most innovative around. One of their investments, Creo Medical, for example is developing non-invasive surgical technology to offer fast treatment and same day recovery.
Hargreave and Feld think markets are likely to remain unpredictable in 2019 because of worries about Brexit, US-China trade relations and rising interest rates. They’re confident about the potential of small UK companies to keep innovating and growing though. And they believe they’re in a good position to take advantage of the opportunities they uncover.