A brilliant performer among small-cap funds

Most fund managers try to attract investors by promising to beat the market they are ‘benchmarked’ against. But finding a fund that consistently performs well over the long run is actually very difficult to do.

All managers have good and bad years – which you’d expect – but a surprisingly large number fail to beat their benchmarks over any worthwhile period of time. This is where this successful small-cap fund stands out.

The trust has beaten its benchmark, the FTSE Small Cap index (excluding investment companies), every year for the last decade, says Moira O’Neill in the Investors Chronicle.

The manager of BlackRock’s Smaller Companies Trust (LSE: BRSC), Mike Prentis, reckons the secret to his success is diversification and – of course – selecting the right stocks (although it probably also helps that small caps have a tendency to outperform in the very long run – see page 12 for more on this).

“People talk about having their best bets concentrated,” he tells O’Neill. “But… it’s better to be diversified.” Prentis holds more than 150 stocks in his portfolio and is able to hold as many as 170.

Blackrock Smaller Companies chartThe trust invests mainly in UK-based smaller firms, but Prentis gets exposure to overseas growth by buying UK stocks with international exposure, such as Vimto-maker Nichols and exhibitions group Tarsus.

Nearly 30% of its holdings are industrial stocks, with financials and consumer services also well represented. Recent strong performers have included Clarkson, which is benefiting from improving shipping markets, and soft furnishings supplier Walker Greenbank.

Prentis also recently invested in online fashion retailer Boohoo. The trust has returned more than 300% over five years, around 70% over three years and around 34% over one year.

BlackRock Smaller Companies top holdings
Name of holding % of assets
Bellway 2.30%
Howden Joinery 2.10%
Workspace Group 1.90%
Senior 1.90%
Dunelm Group 1.80%
Booker Group 1.70%
ITE Group 1.70%
Restaurant Group 1.60%
Ashtead Group 1.60%
LSL Property Services 1.50%

 

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