The Marlborough Special Situations Fund is based on a very simple premise: smaller companies tend to grow more quickly than large ones, so investors looking for rapid capital growth should focus on smaller shares. The fund is one of three small-cap funds that highly rated manager Giles Hargreave runs, and is the one with the strongest record: it's ranked third in its peer group over a ten-year period, returning 205% against a sector average of 107%. It has also strongly outperformed its peers over one, three and five years.
Hargreave and co-manager Eustace Santa Barbara look for simple companies in niches that have high barriers to entry. However, their single most important criterion is excellent management.
"The quality of leadership is particularly important in small caps," Santa Barbara told FT Adviser earlier this year. "Only in very rare circumstances would we invest without meeting the management first."
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The portfolio is constructed in a "sector-agnostic manner", says Santa Barbara, with major holdings including plastics manufacturer RPC Group, sports retailer JD Sports, and Fevertree Drinks, which makes premium mixers and soft drinks.
Though smaller companies can grow more quickly than large caps, they also tend to be more volatile. In order to limit risks, Hargreave and Santa Barbarahold more than 200 stocks and even the fund's largest holdings rarely exceed 2% of the portfolio. "If you have too concentrated a portfolio in small caps, you can have terrific performance one year, and then run the danger those stocks have done all they can And so the following year you might have very poor performance," Hargreave told MoneyWeek last year."For us, it's about diversified portfolios."
Ongoing charges are 0.8% per year for the "P" class shares, available through major stockbrokers and fund supermarkets.
Contact: 0808-145 2500.
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