Just over 18 months ago, Harry Nimmo’s Standard Life UK Smaller Companies fund was labelled a “dog” fund (a dubious accolade awarded to funds that have underperformed their benchmark for three years in a row, and by more than 10% over that entire period) by wealth manager Tilney Bestinvest.
Yet this year, Nimmo – who has a strong long-term track record, going back to 1997 – topped TD Direct Investing’s list of best-performing fund managers over ten years. Better yet, his small-cap fund has recovered its footing, gaining nearly 27% on the year, compared to the sector average of 15.6%, according to Citywire.
Nimmo puts his recent success down to investing in “stodgy” companies, such as bakery Greggs, says Judith Evans in the Financial Times. Those “higher-quality, more predictable businesses are performing well at the moment”, says Nimmo, “and that’s where we have our exposure”. Nimmo is clearly popular with investors – he has just confirmed that he will stay on at Standard Life for a further seven years before retiring, triggering a surge in the share price of the investment trust version of his fund (listed under the ticker LSE: SLS).
But Standard Life’s small-caps fund is not without its problems. Morningstar recently downgraded the fund’s rating from gold to silver, citing a tendency to select companies with the potential for growth, “with valuation a secondary consideration”. Morningstar is concerned that this practice – along with an increased weighting towards mid-caps – might have a negative effect on the fund’s performance.
Perhaps more importantly (as far as we at MoneyWeek are concerned), Morningstar also highlighted the high ongoing charge figure (OCF) of 1.69%, which was bumped up after a hike in the annual management charge in 2011. The OCF is now “amongst the highest in the peer group”, though a lower-fee share class is available via selected platforms.
There’s no denying Nimmo’s track record and if you’re looking for exposure to UK small caps, his fund looks promising. But there are similar open-ended investment companies with lower OCFs. Three of Morningstar’s high-performing small-cap funds based on three-year annualised performance are listed below.
You could also consider the investment trust version of the fund, available at a tiny discount to net asset value of around 1% (in other words, you can buy the underlying portfolio for a little less than it’s actually “worth”). On that front, small-cap trusts with a similarly strong long-term track record, but lower fees (according to the Association of Investment Companies) include BlackRock Smaller Companies (LSE: BRSC), on a discount of around 8% and an ongoing charge of 1%, and Henderson Smaller Companies (LSE: HSL), on a discount of around 4.5% and ongoing charge of 0.89%.
.basic-table {
border-spacing: 0px;
border-collapse: collapse;
border: 1px solid #a6a6c9;
font-family: Calibri, Verdana, Helvetica, sans-serif;
font-size: 1em;
color: #000000;
width: 100%;
}
/* same as basic-table but with smaller font */
.basic-table-small {
border-spacing: 0px;
border: 1px solid #a6a6c9;
font-family: Calibri, Verdana, Helvetica, sans-serif;
font-size: 0.8em;
color: #000000;
width: 100%;
}
/*table with no border – use btfirst for leftmost cells */
.noborder {
border-spacing: 0px;
border-collapse: collapse;
border: 0;
font-family: Calibri, Verdana, Helvetica, sans-serif;
font-size: 1em;
color: #000000;
width: 100%;
}
/* headers */
th.bth, th.headnorm {
background: #2b1083;
padding: 3px 3px;
border-left: 1px solid #a6a6c9;
border-bottom: 0;
border-right: 0;
border-top: 0;
color: white;
font-weight: bold;
text-align: center;
}
/* normal cells – left aligned, and centered */
.btfirst {
padding: 3px 3px;
border: 0;
vertical-align: center;
text-align: left;
}
td.btleft {
padding: 3px 3px;
border-left: 1px solid #a6a6c9;
border-right: 0;
border-top: 0;
border-bottom: 0;
vertical-align: center;
text-align: left;
}
td.btcenter {
padding: 3px 3px;
border-left: 1px solid #a6a6c9;
border-right: 0;
border-top: 0;
border-bottom: 0;
vertical-align: center;
text-align: center;
}
/* row shading */
tr:nth-child(even) {
background: #ffffff;
}
tr:nth-child(odd) {
background-color: #E1E8F4;}
}
/* “naked” version (no vertical border and bigger, serif font) */
.basic-table-naked {
border-spacing: 0px;
border: 0px;
font-family: font-family: Georgia, Times, ‘Times New Roman’, serif;;
color: #000000;
width: 100%;
}
th.bth-naked {
background: #fff;
padding: 8px 3px;
border: 0px;
font-size: 1.1em;
font-weight: bold;
text-align: left;
vertical-align: center;
}
td.btleftnaked {
padding: 3px 3px;
border: 0px;
vertical-align: center;
font-size: 1.1em;
text-align: left;
}
td.btcenternaked {
padding: 3px 3px;
border: 0px;
vertical-align: center;
font-size: 1.1em;
text-align: center;
}
| Fund | Year to date return % | Three-year annualised % | Ongoing charge figure |
|---|---|---|---|
| River and Mercantile UK Equity Smaller Companies | 16.5% | 25.6% | 1.65% |
| Wood Street Microcap | 14.7% | 25.8% | 1.00% |
| Franklin UK Smaller Companies | 23.3% | 23.2% | 1.59% |
| Standard Life UK Smaller Companies | 26.6% | 17.4% | 1.69% |