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The BlackRock Gold & General onshore fund has not yet exceeded its capacity despite having £1.5bn under management, according to Standard & Poor's.

When S&P reviewed the fund in July, it had swelled from £910m to £1.6bn, according to Daniel Vaughan, lead analyst on global sector funds at S&P. At the time, BlackRock's resource team's total assets under management - including the much larger Gold & General Sicav - came to $11.4bn (£6.1bn).

"The funds managed by the BlackRock team have seen huge growth in recent years," Mr Vaughan said.

But the fund's size has not affected performance relative to its peers, he said, because it did not need to put too many of its assets in individual small caps. Its positions in such companies do not normally exceed 2 per cent, Mr Vaughan said.

"BlackRock has argued there has not only been a raft of mergers and acquisitions in the sector, creating ever bigger stocks, but also a host of new companies coming into the universe. They have done a fair amount of work on calculating the maximum capacity for their funds."

Mr Vaughan said the team had sensible risk-management procedures that had enabled it to avoid these issues in its onshore Gold & General portfolio.

"They have internal rules on company ownership limits that they cannot breach and rules on trading days to exit a position, which could be an issue for taking smaller-cap positions that have less liquidity."

Steve Russell, investment director at Ruffer, said it was essential for precious-metal equity funds to invest in small and mid caps because they had a better development pipeline than the larger companies, making them excellent targets for acquisition.

Mr Russell said Ruffer's £116.8m CF Ruffer Baker Steel Gold fund, run by David Baker and Trevor Steel, could dart in and out of small-cap positions because of its comparatively small size.

Over one year to 11 August, the BlackRock Gold & General fund, run by Graham Birch, returned 10.2 per cent, while the CF Ruffer Baker Steel Gold fund lost 14.1 per cent against an 8.6 per cent loss for the Specialist sector. The funds placed 10th and 57th in the peer group, respectively.

Over three years to 11 August, the BlackRock Gold & General fund gained 95.3 per cent, while the CF Ruffer Baker Steel Gold portfolio rose 40.6 per cent against a 32.7 per cent increase for the Specialist sector. The portfolios came seventh and 15th in the peer group.