Three small cap managers who bucked the underperformance trend
A large proportion of funds that invest in less-known UK companies have failed to outperform over the long term, amid a strong rally in small-cap stocks.
Data compiled for Your Money‘s sister title Investment Week shows the average small-cap fund has lagged the benchmark index by 20 percentage points over five years.
The UK Smaller Companies peer group, which consists of 53 funds, returned an average of 207.3% over five years to 5 February, according to FE, the investment research firm, versus a return of 226.7% from the FTSE Small Cap ex-ITs index.
However, although the average fund may have underperformed the index there are some managers who consistently out perform their benchmark but also protect investors’ money over the medium term.
“Even in the smaller companies space good managers look to reduce risk, protect capital and then to grow their investments,” says Adrian Lowcock, senior investment manager at Hargreaves Lansdown.
Here, Lowcock identifies three managers who have delivered consistent long term positive returns for investors as well as beating the FTSE Small Cap (ex IT) index over five years.
Giles Hargreave – Marlborough UK Micro Cap Growth fund
• Over any five year monthly rolling period since December 1998 Giles Hargreave has never lost money for investors.
• Over this period the average annual return was 17.6%.
• In any 5 year monthly rolling period he has never under-performed the FTSE Small Cap (ex IT) Index since 1998.
Lowcock says: “We like that Hargreave has over 45 years’ investment experience and has delivered strong returns during his career. He avoids companies which offer high returns, but are high risk. We like his preference to back businesses which have the potential to grow but importantly have more sustainable business models. This ability to find growth while protecting investors’ money has led to strong out performance.”
Harry Nimmo – Standard Life UK Smaller Companies fund
• Over any five year monthly rolling period since 1997 Harry Nimmo has never lost money.
• Over this period the average annual return was 11.4%.
• In any five year monthly rolling period he has never under-performed the FTSE Small Cap (ex IT) Index since 1997.
“We like Nimmo’s forensic approach to analysing companies, asking management challenging questions about their businesses. If satisfied he invests in a business for the longer term and could hold a successful investment as it progresses from a smaller company into a larger business. His long term focus has added value for investors,” Lowcock says.
Dan Nickols – Old Mutual UK Smaller companies fund
• Over any five year monthly rolling period since 2001 Nickols has never lost money.
• Over this period the average annual return was 14.9%.
• He has beaten the FTSE Small Cap (ex IT) Index 98.7% of the time in any five year monthly rolling period since 2001.
Lowcock says: “Old Mutual has one of the strongest UK equity teams of which Dan Nickols is a key member. Nickols conducts individual company research and combines this with the team’s view of the economy, looking for themes from which smaller companies will benefit.”