Szymon Idzikowski, closed-end fund analyst at Morningstar, said: “We think highly of manager Harry Nimmo. He has been investing in small caps for nearly 20 years and has built both a strong team and a disciplined process.

“However, until last month, the one thing we didn’t like about Standard Life UK Smaller Companies was the structure of the performance fee.”

Nimmo’s fee was calculated on a 12-month basis only and used an index that wasn’t fully representative of the fund’s composition.

Morningstar also felt there was no obligation to make good on underperformance and that all in all it added up to a more expensive fund that its peers.

Well-managed discount

“We’re very pleased to see the board abolish the fund’s performance fee and believe that by doing so it now makes this fund a standout choice in its space.”

In the nine years Nimmo has managed the trust it has returned 325%, compared to 84.2% from the benchmark. But this year his performance has faltered and in the year to 30 June the fund has seen 16.7% wiped off its share price high set on 7 May 2011.

Further analysis of the fund from Morningstar said it had traded at both a discount to Nav as well as a premium. In both cases the board has been seen to take action, issuing shares when at a premium and buying back shares when at a discount, Morningstar added.

“This has led to a three-year average discount that is tight, at 5%. We like the clear message this gives to shareholders and the reassurance that the board wants to prevent this from drifting too far in either direction,” the analysis concluded.