The fund’s performance has moderated in relation to its benchmark, the FTSE Small Cap, prompting fears the fund managers are unable to maintain the strong performance profile as a result of the fund increasing in size to nearly £500m.
It produced strong returns in absolute terms in 2013, 25.4%, but this was less than the index which posted 27.8%. Its relative performance has continued to wane into 2013, despite UK smaller companies still enjoying a strong run.
The fund’s strong performance ranks it fourth in a sector of 54 smaller UK companies over the five year period to the end of January 2013. This has attracted strong capital inflows, and the fund has grown from £130m in April 2010 to £490m as of January 2013.
However, portfolio turnover has been declining, from 111% in the year until September 2010 to 75% in 2011, and 49% in 2012. This could be a reflection of inflows representing a smaller portion of total assets, or it could be an indication that the larger size is affecting the ability to make portfolio changes.
Mick Gilligan, head of research at Killick & Co, said: “One potential drawback of successful funds is that they grow in size to the point where portfolio flexibility is hindered and performance starts to suffer. This is of particular importance to smaller company funds, where underlying stock liquidity can be a real issue. The significant increase in fund size, combined with a drop off in performance has prompted us to review our options in this space. In the meantime, we downgrade to Neutral and move the risk rating up one notch, from four to five.”
