It does not invest in any listed investment companies or investment trusts. The trust also has a market cap of £50m for investments and aims to invest purely in those its managers believe to be at a point of change.
Annual figures
The Table also shows annualised discrete data for the past five years. It is clear the years between 2012 and 2014 saw huge returns for UK small-cap funds, particularly 2012-13 for the Fidelity UK Smaller Companies fund, managed by Jonathan Winton and Alex Wright, which saw a 61.3 per cent return over the year.
On the investment trust side, Gresham House Strategic saw a massive return of 80.3 per cent in the same year.
The success of UK small-cap funds has moved some fund groups — including Liontrust and Marlborough — to launch micro-cap funds, reaching the smaller end of the market in companies that tend to have a market cap of £150m and below.
The year ahead remains uncertain for the UK in general, particularly following the EU referendum and its inevitable fallout. Speculation will now surround when the Bank of England is going to raise interest rates and by how much.
But should small-cap funds continue to remain strong amid market concerns, it could be a better year to be invested in them than in large-caps.
FIVE QUESTIONS TO ASK
1. Should I use an investment trust or unit trust?
Both carry separate risks, but there is no right or wrong answer. It all depends on the individual investor. Typically, investment trusts outperform unit trusts over the long term, but investment trusts can carry more risk and liquidity issues.
2. What size market cap do they invest in?
According to IA stipulations, UK Smaller Companies funds must invest in the bottom 10 per cent of the market. A lot of funds will use Aim-listed companies and others will use unlisted companies, so check the fund’s asset allocation before investing.
3. How much risk do they carry?
It all depends on a fund’s asset allocation. Generally speaking, small-cap funds will experience more volatility than their large-cap counterparts.
4. Is an active fund better than a passive fund?
It is the age-old debate of active versus passive management, but it all depends on individual client needs and their suitabilities. They are both suited to the UK market, but cost and performance can vary hugely.
5. Do the funds purely invest in the UK?
Not necessarily. While 80 per cent of the fund must be invested in UK securities, there are still many funds that will hold varying proportions of the remaining 20 per cent in other countries. There are also some companies that, while listed in the UK, have a very global exposure.
