AJ Bell has dropped Merian UK Smaller Companies from the highest-risk portfolio in its managed portfolio service (MPS) in a blow to the team following underperformance during the recent market sell-off.
The £1bn UK All Companies fund has been replaced with the much smaller Tellworth UK Smaller Companies, which Paul Marriage and John Warren launched in late November. The £38m fund is now a 3% weight in the Active 5 and Active 6 funds.
Merian UK Smaller Companies, managed by Daniel Nickols, was dropped in Active 6, and Man GLG Undervalued Companies and Investec UK Alpha were trimmed in Active 5 to make room for the Tellworth addition.
The MPS now has no exposure to Merian Global Investors.
AJ Bell head of active portfolios Ryan Hughes said the changes are the first to the Active range in the MPS, which launched in February 2018. The first change to the Income range, which also allocates to active funds, was made in September last year when Newton Income was introduced and Artemis Global Income was reduced for diversification purposes.
Tellworth offers smaller cap exposure
Tellworth UK Smaller Companies invests lower down the market-cap spectrum with a focus on companies between £100m and £500m. It is benchmarked against the Numis Smaller Companies plus AIM whereas the Merian UK Smaller Companies fund is benchmarked against the main Numis Smaller Companies index.
The fund has returned 2.1% since launch compared with 1.44% losses in the benchmark.
Hughes said: “They’ve been very clear this is a capacity-constrained strategy. Part of the reason they wanted to set this up on their own was to ensure they had full control over that capacity. Getting into that strategy now was one of the appealing features of it.”
The addition strengthens the breadth of coverage in the small-cap space within the MPS funds, he said.
Marriage and Warren exited Schroders, where they managed the UK Dynamic Absolute Return strategy, at the end of 2017 to establish Tellworth Investments.
The team is hungry to perform because their “name is above the door”, he said of Marriage’s new venture. The fund’s administration has been outsourced to Link Financial. “All that due diligence you do anyway, with a new firm you just want to dot the ‘i’s and cross the ‘t’s.”
Merian UK equities team suffers in Q4
Three Merian UK equity funds were among the bottom-10 equity funds for 2018 after a devastating Q4.
Hughes attributed the hit to growth stocks in Merian small and mid-cap portfolios. “They’ve done very well out of stocks like Fevertree and Boohoo, the market favourites for the last couple of years, but those stocks were sold down quite aggressively in Q4.”
Merian UK Smaller Companies performance
| 1m | 3m | 6m | 1yr | 3yr | 5yr | 10yr | |
| Merian UK Smaller Companies | 4.48 | -9.14 | -16.56 | -13.15 | 38.68 | 54.61 | 388.48 |
| Numis Smaller Companies Excluding Investment Companies | 5.10 | -4.78 | -11.43 | -11.58 | 24.79 | 23.42 | 320.71 |
| IA UK Smaller Companies | 3.10 | -6.21 | -13.69 | -10.25 | 29.84 | 36.97 | 321.44 |
Source: FE Analytics
He said: “That certainly isn’t the reason why we made the change. This change had been planned for quite some time; we were just waiting for the Tellworth fund launch to happen.”
Merian UK Smaller Companies remains on the AJ Bell favourite funds list.
