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Small is beautiful: five fund minnows wealth managers back
by Danielle Levy on Jun 25, 2014 at 12:32
With large funds dominating the headlines and buy lists, we surveyed our readers to find out which smaller funds also deserve to be in the spotlight.
Large funds dominate the headlines, with many investors concerned they stand to get even bigger due to buy-list concentration and centralisation.
This is why the idea of backing a fund early – or when it is smaller – could now prove all the more crucial. Not only can you benefit from the early stages of outperformance, but it can also add credibility and show differentiation in your fund selection process.
Whitechurch Securities’ managing director Gavin Haynes warns large funds are reaching capacity even quicker these days due to the significant flows that can follow a place on a coveted buy list.
‘It does pay off to back funds early. We prefer funds that are going to be smaller and more flexible,’ he said.
‘While investment management houses always tell you it is not a problem dealing with big funds, the reality is smaller funds have a wider investment universe and it is easier to get in and out of stocks.’
The main consideration when investing in smaller funds is the higher total expense ratio. However, this should come down as the manager attracts inflows. Haynes views funds reaching £90 million as being ‘in the sweet spot’, as they have the scalability where a wealth manager can buy the fund without owning too much of it.
Here we highlight five minnows that investment managers are backing as tomorrow’s outperformers.
Verrazzano Advantage European
Manager: Guillaume Rambourg
Size: €108 million (£87.2 million)
Performance since launch in January 2014: 3.7%
Sarasin fund of funds manager Oliver Tucker is positive on Guillaume Rambourg, CIO at Verrazzano Capital. Tucker is backing the former Gartmore star’s Advantage European fund and highlights his recently launched European Long Short Ucits fund as an alternative way to access Continental equities.
JOHCM Emerging Markets fund
Managers: Emery Brewer, Dr Ivo Kovachev
Size: £48.3 million
Three-year performance: 1.7% vs -2.4% average manager
Sarasin’s Tucker is particularly positive about + rated Brewer and Kovachev’s growth approach and highlights a good track record in emerging markets while at their previous firm Driehaus. He believes the fund is a solid alternative to the closed Aberdeen, First State and Lazard emerging markets funds.
Manager: Hugh Yarrow
Fund size: £92 million
Three-year performance: 50.1% vs 38.6% average manager
Whitechurch’s Gavin Haynes welcomed a newer face in the equity income sector at a time when star manager Neil Woodford is receiving a lot of attention. Having followed AA-rated Yarrow during his time running money at Rathbones, Haynes said: ‘We rated him at Rathbones. His approach is based on quality, long-term global leaders and companies that can continue to grow their dividends over the long term.’
CF Miton UK Value Opportunities
Managers: George Godber and Georgina Hamilton (pictured)
Fund size: £83.2 million
One-year performance: 27% vs 15.6% average manager
Former Matterley co-founder Godber joined Miton with Hamilton in December 2012. The Matterley Undervalued assets fund had a strong track record and the pair have continued to deliver strong outperformance at Miton. Whitechurch’s Haynes said: ‘This is very much a value-driven approach and we have been quite impressed.’
Saracen Global Income & Growth
Manager: Graham Campbell
Size: £42.4 million
Three-year performance: 48.7% vs 33.9% average manager
AA-rated manager Campbell is a long-established manager, but despite the fund’s strong performance track record, it is small at £38 million. City Asset Management research director James Calder holds the fund. He said: ‘They have a very experienced team and take a very forensic approach to company analysis.’