Many would welcome a UK mid-cap sector if the proposal by the Investment Association takes flight for a fairer comparison of funds.
Tom Becket, chief investment officer at Psigma Investment Management, says the system had to change.
“Having mid-cap funds in the UK All Companies sector was farcical. It made it a very uneven playing field, particularly over the last decade when mid-cap companies structurally outperformed [blue chips],” he says.
The peer group – which comprises the 101st to 350th largest companies in listed on the London Stock Exchange – was inadvertently misleading investors as funds with higher exposure to Mid 250 companies appeared “unnecessarily good” at times.
Becket adds: “Investors didn’t necessarily know the concentration risk they were taking in mid-cap funds. It’s probably good that this is now taking place.”
Darius McDermott, managing director at FundCalibre, would welcome the new sector for allowing a more like-with-like comparison.
For many years, the mid-cap index has outperformed the FTSE 100 and this has meant that the mid-cap funds have been near the top of the all company sector, he says.
Yet things have tailed off, and those structurally overweight mid-cap portfolios have decimated their long-term track records as mid caps have fallen out of favour, Becket adds.
Old Mutual UK Mid Cap, run by Richard Watts, is currently the top performer in IA UK All Companies, with a three-year return of 76% to 31 May, according to FE.
F&C UK Mid Cap takes 10th top spot, having gained 48% over the timeframe.
With so many Mid 250-focused funds having beaten their UK All Companies peers over recent years, grouping them all together might be presenting a false dominance – and one that will rise and fall as momentum behind mid-sized companies moves through the cycle.
Conversely, it could do a disservice to other – genuinely all-cap – strategies.
