The Investment Association (IA) UK Smaller Companies sector consisted of 48 funds as at the end of August 2024, with the IA reporting total assets of around £10.6bn. Against a backdrop of poor investor sentiment, the bulk of funds in the sector have faced considerable outflows.
Indeed, when looking at the IA’s flow data to the end of July, the sector has only had one month of inflows since July 2021 – a rather modest £87m in August 2021.
Aside from the smallest 10 funds in the sector, all of which currently have assets below £50m (often a ‘magic number’ for fund selectors), there are plenty of options available across a variety of styles. There has been somewhat of a Darwinian mentality at the upper end of the AUM scale and it is worth noting that the 10 largest funds account for more than half of the sector’s assets.
This has led to some strategies being soft-closed, while others have looked to limit capacity by other means, deliberately elevating fees to deter investors and placing a limit on the number of units in issuance, for instance.
Liquidity remains a vitally important consideration for fund managers and fund selectors alike, given there are very few hiding places in this asset class in times of market stress.
A hard launch
The lack of investor interest is a likely indication of how difficult it is for new strategies to make an impression in the sector. Indeed, there have been only three new funds launched since 2020: WS Whitman UK Small Cap Growth in December of that year; and SVS Dowgate Wealth UK Small Cap Growth in March 2022, with both having solid return profiles against the peer group average since their respective releases.
The most recent addition is WS Raynar UK Smaller Companies, launched in July 2024 and managed by experienced UK small-cap investor Philip Rodrigs.
Unsurprisingly, given the backdrop for the sector, assets across the three funds remain fairly modest.
Read the rest of this article, plus John Monaghan’s funds to watch by assets under management, three-year performance and newcomers in October’s Portfolio Adviser magazine
