BEST LARGER FUND
Standard Life Investments Global Smaller Companies
1-year return: 18.2% | 3-year return: 65.8%
A smaller companies fund lifts the Best Larger Global Growth fund award for 2018 in the form of Standard Life Investments Global Smaller Companies, which is also a new entrant to our Rated Funds this year. It has notched up a stellar performance thanks to a rally in smaller company shares that has taken them to near all-time highs, while geopolitical concerns held back larger company shares.
Alan Rowsell has managed this fund from its inception in 2012, since when it has attracted £879 million in assets. He has demonstrated strong stockpicking prowess – outperforming the IA global sector average by 17 per cent over the past year and almost 33 per cent over three years. Rowsell runs a concentrated portfolio of around 50 stocks using a bottom- up investment process that is focused on identifying high-quality, sustainable growth businesses.
The first stage of his investment process is to use ‘the matrix’, a stock-screening process, followed by rigorous fundamental research and company meetings. He believes this approach is resilient during economic downturns and should outperform over the cycle. With central bank support for the global economy being removed and interest rates starting to rise, Rowsell says there is no better time to be invested in businesses that earn high returns on capital.
BEST SMALLER FUND
MI Metropolis Value
1-year return: 4.3% | 3-year return: 50%
MI Metropolis Value is our Best Smaller Global Growth fund, having produced consistently solid performance. It has outperformed the wider sector by 3 per cent and 16.8 per cent respectively over one and three years. That is no mean feat, given that its focus is on value stocks – those trading at below their intrinsic value – which have largely been out of favour since the financial crisis.
The fund is run by Jonathan Mills and Simon Denison-Smith, who met in 1990 while working as strategy consultants at Bain & Company and are well-versed in acquiring strong but unloved businesses at low prices.
In 1994, they founded Metropolis International, a media and software group that they built through more than 30 acquisitions of private businesses. In the late 1990s, they also ran a small investment club, inspired by studying the success of Warren Buffett. They founded Metropolis Capital in 2008 and opened up their strategy to outside investors with MI Metropolis Value in 2011, attracting £124 million.
The managers invest in high-quality but misunderstood value opportunities of any size within the equity markets. The portfolio is concentrated, with typically 15 to 25 holdings. They like businesses that are easy to understand and have ‘wide moats’, long-term contracts, unique brands, infrastructure that is difficult to replicate, patents or licences.
HIGHLY COMMENDED LARGER FUND
1-year return: 7.3% | 3-year return: 62.9%
Fundsmith Equity is no stranger to our awards, having being named the Best Larger Global Growth fund in 2016 and 2017. It was highly commended in this category in 2015 and picks up that title again in 2018. A Rated Fund since 2013, it was launched in 2010 by industry stalwart Terry Smith and in less than eight years has grown to £13.4 billion in size.
Smith’s approach is to pick a small selection of high-quality shares – 28 at present – and stick with them. He likes to buy long-established firms with big brands. The fund’s largest investments include household names such as PayPal, Microsoft and Facebook.
Other qualities he looks for in companies are a high return on capital and advantages that are difficult to replicate. Smith believes it is virtually impossible to predict the direction of stock markets, but that the strength of the companies he holds will allow them to continue to grow their intrinsic value.
HIGHLY COMMENDED SMALLER FUND
Orbis Oeic Global Equity
1-year return: 4.9% | 3-year return: 50.6%
This fund has an unusual fee structure in that it only charges investors in its ‘standard’ share class if its fund managers deliver index-beating performance. Investors only pay a fee when the fund outperforms the MSCI World index; they receive a refund when it underperforms the benchmark. It is arguably this performance-driven culture that has helped the firm deliver strong results for investors – and handed Orbis Oeic Global Equity the title of Highly Commended Smaller Global Growth fund.
The £52 million fund also has a distinctive investment approach, with teams of analysts based in various locations covering stocks from around the world and each running a portfolio of best ideas. William Gray, head of the investment team, selects the most talented stockpickers and also decides upon the capital allocation between them.
His stockpickers rely on fundamental research and favour companies with good management, solid track records and robust balance sheets. They tend to seek companies that are trading at a significant discount to their assessment of the intrinsic value of the business.