Marlborough Special Situations is broadening its investment policy to include companies higher up the market cap scale and moving to a different Investment Association sector to help the managers “run winners” for longer.
The fund, managed by Eustace Santa Barbara (pictured) and Guy Feld, will continue to focus on small cap companies, but from 2 August it will be able to hold a higher proportion of mid and large cap holdings.
Under the fund’s investment policy, the managers are currently required to hold at least 80% of the fund in UK smaller company equities. This will be updated to a minimum of 60%.
Moving into the UK All Companies sector
The fund’s definition of UK smaller companies is also being updated, to include those with a market capitalisation of less than £2.5bn. Previously it was the bottom 10% of the UK market, which means companies with a market cap of £1.9bn or less.
As such, the fund will move from the Investment Association’s UK Smaller Companies sector to the IA UK All Companies sector.
The fund sits in the second quartile over one, three and five years, having returned 55.5%, 38.9% and 100.5%, respectively, compared with the IA UK Smaller Companies sector average of 52.6%, 34.9% and 94.5%, according to FE Fundinfo.
Over three and six months it has slightly trailed the sector average, with returns of 13.4% and 26.7%, respectively, compared with the sector’s 14.1% and 28.2% gains.
A press release announcing the change, which has received Financial Conduct Authority approval, said it will enable the managers to “remain invested in more of the success stories in the fund that grow from smaller companies into mid-cap and large-cap stocks”.
“It will also give the investment team greater freedom to identify exceptional opportunities among large-caps and the bigger mid-cap companies,” it added.
Why deviate from small cap?
Fairview Investing co-founder and consultant Ben Yearsley described the move as an interesting one because instinctively he thinks there are ulterior motives for such changes, such as the fund becoming too big or wanting to add more liquidity.
“I did a call with the two of them a month or so ago and I have no issues with them as managers,” he added. “However I think by changing the goalposts they start to dilute their message. Small cap has always been their area of excellence, why deviate from that?”
But Fundcalibre managing director Darius McDermott feels the move is “more of a tweak to the mandate than a big change in style”.
“It will still have a smaller companies focus, which is the team’s speciality, but this will allow them to remain invested in companies they believe in as they grow instead of being forced sellers,” McDermott said.
As such Marlborough Special Situations will retain its Elite ranking.
‘Run your winners’
Marlborough chief executive Richard Goodall said: “The success of Marlborough Special Situations has been built on a tried and trusted investment strategy, a key tenet of which is ‘run your winners’. The investment team identify smaller companies with exceptional potential and then stick with them as they prosper and grow.
“Over the years that’s meant the number of larger companies in the portfolio has increased, as outstanding smaller companies grow and become mid-cap and large-cap businesses.
“Clearly we don’t want the team to be forced to trim or sell out of positions in companies they know well and believe have bright prospects for the future. So, we’re updating the fund’s investment policy so they can continue to hold these outstanding businesses as they go from strength to strength.”
Santa Barbara and Feld became co-managers on Marlborough Special Situations at the start of the year after it was announced in May last year that Giles Hargreave was stepping back as a named manager on the firm’s three UK small-cap equity funds.
