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Fund picks: alternatives to investing in AIM shares

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ISA investors will be able to put shares of UK smaller companies into their portfolios from 5th August.

By allowing AIM-listed companies into ISAs, nearly 1,000 extra shares will become available to investors.

As well as improving consumer choice, it is hoped the new rules will offer small businesses a much-needed boost.

However, while the move has been widely welcomed by experts, some have urged caution.

Danny Cox of Hargreaves Lansdown said: “AIM shares can be very volatile and smaller companies generally are higher risk than the so-called blue chips, therefore investors should be aware of the risks.”

One alternative to investing in AIM shares is to go for a fund which invests in smaller companies and is eligible to hold within an ISA.

We ask two top professional investors which smaller company funds they rate:

James Bateman, Fidelity head of portfolio management, investment solutions group


Marlborough Special Situations fund, Hargreave Hale

“Company meetings are an integral part of the investment process and the team meets an average of twenty five companies each week. There are around 250 holdings and no large bets which gives diversification benefits across many sectors.”

Daniel Nickols manages the Old Mutual UK Smaller Companies fund

“Each member of the investment team has sector responsibilities and within the top down framework they are looking to identify companies that are out of line with the consensus and so where they consider a re-rating likely. They are pragmatic about value and growth opportunities and will consider each as appropriate depending on where they consider themselves to be in the economic cycle.”

Threadneedle UK Mid 250 fund managed by Simon Haines

“The fund invests at least two-thirds of its assets in shares of medium sized companies in the UK that are part of the FTSE 250 (excluding Investment Trusts) Index. The focus of the fund is on high quality companies that are able to deliver transformational growth but maybe out of favour which is likely to be reflected by an attractive valuation.”

Franklin Smaller Companies run by Paul Spencer and Richard Bullas

“The fund managers look for companies that are leaders in their niche markets, have strong balance sheets and where any downside to valuation is limited. The fund is relatively small currently which gives the team greater flexibility when looking at new ideas.”

David Blake, private clients & charities director, Jupiter’s Private Client team


Cazenove UK Smaller Companies managed by Paul Marriage and John Warren

“The fund has generated strong performance over testing markets since Paul Marriage took the helm in 2006. The fund can invest in smaller mid 250 stocks down to AIM stock. The manager takes a pragmatic approach matching what he calls his “P3M criteria” defined below:
• Product-backed by Research & Development and intellectual property
• Market-a market leader in its field
• Margin- profitable and growing margins.”

Marlborough Special Situations run by Giles Hargreave

“The fund invests in smaller companies with a particular focus on AIM, but can hold some Mid 250 stock. Hargreave is a very experienced manager and benefits from having a large team which carries out their own research on smaller companies that may have been overlooked by the wider investment community.

Old Mutual UK Smaller Companies by Daniel Nikols

“The fund has been a steady performer and benefits from the wider mid and small cap team at Old Mutual with strategic overview from Ashton Bradbury. The fund mainly invests in the Numis Smaller Companies Index with includes AiM shares but currently the fund has c40% in mid cap stocks.”

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