It has been a tumultuous three years since the EU referendum and despite the political paralysis in Westminster there have been plenty of funds that have made good progress, writes Nick Sudbury.
The area with the biggest domestic exposure that might have been expected to suffer the most, the UK Smaller Companies sector, has actually outperformed all of the other UK and European equity peer groups. Over the period from the referendum on 23rd June 2016 to 11th June this year, the average UK smaller companies fund returned 48%, which was well ahead of the 26% increase in the relevant index.
Over the same timeframe, the Europe ex UK sector rose by 38%, closely followed by its small cap equivalent, which returned 37%. Both comfortably outperformed the 32% achieved by the average UK All Companies fund and the 25% increase in the UK Equity Income sector.
The top performing fund
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Chelsea Financial Services, the firm that conducted the research, found that out of all of these different areas the top performing fund was TM Cavendish AIM, which returned an impressive 122%. It has been managed by Paul Mumford since October 2005 and is unusual as it mainly invests in stocks listed on the Alternative Investment Market (AIM).
In second and third places with returns of around 89% were Jupiter UK Smaller Companies and Merian UK Smaller Companies Focus, although the first of these is currently being run by an interim manager.
Nick Williamson, who manages the Merian fund, delivered strong performance in 2016 and 2017 thanks to his overweight position in structural growth stocks, but this then hurt the returns in the final quarter of last year when markets sold off because of fears of higher US yields. He has now reduced the degree of these thematic tilts in his portfolio and is concentrating on trying to identify the best stock specific ideas.
One of the best small cap managers in the country
Two other interesting funds among the top performers are Marlborough Nano Cap Growth and Marlborough UK Micro Cap Growth, which returned 79% and 67% respectively over the period. Both are run by the highly regarded Giles Hargreave of Hargreave Hale, who many believe to be one of the best small cap managers in the country.
The Nano Cap Growthfund invests in companies worth less than £75m at the time of purchase, whereas UK Micro Cap Growth targets those valued below £250m, with a considerable portion held in those worth less than £150m. Both have highly diversified portfolios of 150 and 250 holdings respectively to reduce the stock specific risks.
The top European fund on the list is LF Miton European Opportunities with a gain of 78%. It has a concentrated portfolio of 51 holdings and a bias towards medium sized companies with a market value of between £2bn and £15bn.
There is still four months to go until the next and potentially final Brexit deal deadline so the uncertainty is set to continue for the foreseeable future, especially with the new Prime Minister yet to be chosen by the Conservative party. It is clearly a challenging environment for fund managers, but the healthy returns over the last three years show that it is perfectly possible to make decent gains against this kind of backdrop.