It was back in October 2010 when ‘Balemania’ first took hold, with the Welshman scoring his first hat trick against the then European champions Inter Milan in the San Siro, so we’ll use the past three years as our timescale (to August 21).
Over that period, it is two UK small cap vehicles that have really stood out with Henry Lowson’s Axa Framlington UK Smaller Companies Fund (£59m) and Daniel Hanbury’s River & Mercantile UK Equity Smaller Companies Fund (£42m) having both achieved more than 90% growth, according to Morningstar.
Material concerns
Both funds have recently benefitted from an underweight to basic materials as commodity prices have come under pressure, and both are currently overweight industrials.
Another strong performer with a UK small cap focus is Cavendish Opportunities (up 81%), run by the venerable Paul Mumford who seeks out recovery prospects and companies in parts of the market which are perceived to be unduly depressed.
Of course, it helps that the FTSE Small Cap Index (up 60% in three years) and Numis NSCI ex ITs (up 77%) have both been on the rise.
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A small cap rally in the US has also benefited funds focused on this market with offerings from Fleming Family & Partners (FF&P) and JPMorgan also achieving enviable growth. A bonus for managers in the US is the dynamic technology sector, so it’s also no surprise to see the likes of MFM Techinvest Technology (distributed by Marlborough Fund Managers) in our list.
Of the other sectors, special mention should go to John MacDougall’s Baillie Gifford Japan Smaller Companies Fund, which just about fits within our criteria being £97m as at the end of July. Consumer discretionary, information technology and industrials account for more than half of MacDougall’s investment ideas.
European equities rebounded strongly last year and Ignis European Smaller Companies, FF&P European All Cap Equity, Scottish Widows HIFML European Strategy 1, Henderson European Focus and M&G European Smaller Companies funds are among those to have achieved more than 50% returns over the past three years.
While £100m is a monumental fee for one player in the football world, that same figure is relatively small fry in the retail funds space.
Richard Troue, investment analyst at Hargreaves Lansdown, believes managers of smaller funds have an advantage in that they can often move their fund around quickly to take advantage of new opportunities or changes in the economic and market environment.
Liquid issues
“If something happens with one of their holdings they might be able to sell immediately, while it could take a longer for a manager of a big fund to liquidate a large position,” he says.
“Often boutique managers running small funds can be worth backing. They are often less constrained by benchmarks, and well incentivised as they often own the business themselves – if their fund doesn’t perform their livelihood is at risk.”
However, he also highlights disadvantages, particularly that smaller funds can be more expensive as costs are spread over a smaller pool of assets.
He concludes: “There will also be a threshold below which a fund will not be economically viable and a decision could be taken to close it if this is the case. At a size of around £100m investors should be OK in their respects, but once you get down to £10m to 20m a fund could be at risk.”
Whether Bale turns out to be a risk at his going rate remains to be seen. After all, past performance is no guarantee for future returns…
