Cross says Special Situations still has room to manoeuvre

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Cross says Special Situations still has room to manoeuvre

Liontrust’s Anthony Cross has claimed his Special Situations fund could reach £4bn despite already facing certain constraints.

The vehicle has grown to £1.5bn since launch 10 years ago. This had made it harder to take on smaller holdings, said co-manager Mr Cross, but the fund could “slowly” expand further. “You look at funds like Nigel Thomas’s [Axa Framlington UK Select Opportunities fund]. That’s now a £4bn fund. I can see us doing £3bn or £4bn but not overnight. It would be a [slow] approach.”

Mr Cross, who manages the fund with Julian Fosh, said it was now perceived as a more mainstream holding: “In 10 years, the fund moved from something people would ‘give a go’ to being a core part of many portfolios.” But he warned it could not repeat some of its investments from a decade ago because of the liquidity risks posed by smaller holdings as a result of the fund’s size.

He said the fund needed to spend £15m to get a 1 per cent position. “Because of this, a company needs to have a £150m market capitalisation or more. We don’t get as much of that micro cap [growth] as we used to.”

Mr Cross runs a small companies fund with Mr Fosh and is to launch and run a micro-cap fund in 2016. He said holdings such as Aim-listed wealth management firm Brooks Macdonald, which has a market capitalisation of some £250m, “delivered handsomely”, but its original £50m size would have made it too small for inclusion now.

At the end of September, the fund had 33.3 per cent invested in the FTSE 100 companies, 31.5 per cent in FTSE 250, 17.6 per cent in FTSE Aim and 7.6 per cent in FTSE Small Caps.

Beyond its focus on stocks with intangible strengths – such as intellectual property, which rivals would find hard to replicate – Mr Cross stressed the importance of a “low turnover style” within the portfolio.

He said: “The fund has changed in terms of the types and sizes of company it can invest in. But the important thing is this low turnover style. You see managers trying to turn their fund over at a rate of 50 per cent a year – that’s a big number. We do maybe, tops, half a dozen changes a year, of which three are taken over.”

The fund, which had 51 holdings at the end of September, has held eight companies since launch. These include engineering firm Renishaw, communications firm Next Fifteen and pharma giant GlaxoSmithKline (GSK), with all but GSK outperforming the FTSE All-Share index.