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Montanaro slashes fees as manager tips quality to regain favour

by Robert St George on Nov 29, 2013 at 10:59

Montanaro slashes fees as manager tips quality to regain favour

The £198 million Montanaro UK Smaller Companies Investment Trust has joined other closed-ended funds in reducing and simplifying its fee structure.

From 1 April 2014, the trust will lower its management fee from 1% to 0.85% and will also scrap its performance fee.

‘Your board believes that these fee reductions will provide a more competitive and simpler management fee structure,’ said chairman Kathryn Matthews. ‘In addition, this will make fee comparisons with other investment vehicles easier.’

In the six months to 30 September 2013 Montanaro returned 12.8% on a share price basis, although its net asset value gained only 4%, lagging the 12.5% rise in its benchmark Numis Smaller Companies index.

‘We have suffered from the strong rotation into small-cap value, high beta, low quality and cyclical stocks,’ explained manager David Lindley.

However, he noted that over the longer term his fund’s returns were still impressive: it has grown by 49% over the past three years compared with the index’s 40%, 111% against 61% on a five-year view, and 446% against 97% since its inception in March 1995.

A particular drag on recent performance has been Montanaro’s underweight position in consumer stocks, where Lindley commented it is ‘more difficult to discover very high-quality businesses with sustainable competitive advantages that can be held for the long term’. Lindley confirmed he had now reduced this, although he remained underweight in the sector.

Lindley concluded: ‘As we enter the final quarter of 2013, we are seeing small-cap value stocks lose a little steam after a phenomenal run that resulted in an outperformance of  32% relative to growth over the past 16 months. To us, this suggests that we are slowly moving to the next phase of the bull market that would typically be led by growth and quality companies.’

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