And the winners of the UK Smaller Companies award is...
1-year return: 12.1%
3-year return: 103.1%
A close runner-up in this category in 2018, TM Cavendish Aim lifts the Best UK Smaller/Mid Cap Equity fund trophy thanks to its manager Paul Mumford’s strong stockpicking skills. Despite his focus on the Alternative Investment Market (Aim), which carries higher risk than larger companies’ indices due to constituents being at early stages of their development, it is the runaway performer in this category.
Mumford holds more than 70 companies with an initial investment of no more than 1.5% of the fund portfolio. If a company goes bust, he loses relatively little and it therefore does not have too damaging an effect on the wider portfolio.
As a value investor, Mumford likes companies with strong long-term growth potential that are trading at attractive valuations. This means he often fishes for bargains in unloved sectors. He made a handsome profit picking up oil and gas stocks at the height of the bear market back in 2009, with many of his purchases subsequently being taken over. He focused on this area again in the wake of the 2014 oil price crash when oil and gas shares were trading at “stupidly low” valuations.
Mumford said last November that some of his largest holdings were “beginning to shoot the lights out” such as RockRose Energy.
However, the manager has not been immune from value traps, a classic example being music retailer HMV.
HIGHLY COMMENDED FUND
Merian UK Smaller Companies Focus has lost its shine in recent months, but remains a worthy runner-up on account of its strong longer-term performance.
A Rated Fund since 2017, its team-based approach and unusual investment process set it apart.
Nick Williamson became lead manager at the start of 2016 and has attracted a following on account of his conviction behind certain team stock picks proving correct. That led Morningstar to upgrade the fund last year.
Most smaller companies funds are based on a bottom-up stock picking approach with little regard to the economic backdrop, but the Merian team blends both top-down views with fundamental analysis. Investing with reference to the economic outlook could stand it in good stead at this late stage of the economic cycle.
Winner’s largest holdings start to ‘shoot the lights out’