Investing in smaller firms is risky. So good-quality, “active management can add a lot of value”, says Adrian Lowcock, senior investment adviser at Bestinvest, in the FT. Lowcock recommends Giles Hargreave of the Marlborough UK Micro Cap Growth Fund for his “great track record investing over the longer term”.
Over five years to 18 May, the fund has posted a return of 36.9% compared with the FTSE Small Cap ex-IT benchmark return of -30.1%, according to Citywire, making it the top-performing UK smaller firm fund over this period. It’s also in the top four over one and three years. It has a total expense ratio (TER) of 1.52%, but unlike some other small-cap funds, Hargreave’s performance so far justifies it.
Hargreave targets micro-caps: firms with a market capitalisation of up to £100m. He typically holds stakes in more than 200 companies. More than 80% are British firms and he tends to limit holdings to around 2% of the portfolio to mitigate risk.
Technology makes up almost a third of the portfolio, with key holdings including CML Microsystems, Advanced Computer Software Group and Lo-Q. While the current economic climate is a challenge, Hargreave tells Citywire that managers “just have to get through this period”. His fund has a decent cash pile to “pick up stock from others who have got themselves into a mess”.
Overall, as he tells Investment Week, “I feel relatively bullish, given a lot of what is happening in the eurozone has already been priced in by the markets, arguably to the extent that equities are now underpriced”.
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Marlborough UK Micro Cap top ten holdings
| Name of holding | % of assets |
|---|---|
| Clean Air Power | 1.8% |
| CML Microsystems | 1.7% |
| API Group | 1.5% |
| Cap-XX | 1.4% |
| Advanced Computer Software | 1.4% |
| IDOX | 1.3% |
| GB Group | 1.3% |
| M&C Saatchi | 1.2% |
| Gemfields | 1.2% |
| Lo-Q | 1.1% |