After a tough start to the year for many asset classes, the V-shaped recovery seen mid-February has only added to the puzzle for many investors. As markets move into the second quarter, Investment Adviser asked five fund selectors for their sub-£100m, hidden-gem portfolios that they believe are well-placed to outperform.
Jason Hollands, managing director at Tilney BestInvest:
First State Asia Focus (£45m)
A nipper in the context of First State’s extensive overall Asian franchise. The fund was launched last year following the splitting of First State’s Asia teams between Edinburgh-based Stewart Investors and this team, who are based in Asia. It pursues a more high-octane approach than First State’s core Asia funds and is managed by Martin Lau and Richard Jones.
I think the small size gives the fund some added flexibility in the current environment. The portfolio is quite concentrated at 51 holdings and the strategy is to take an unconstrained “best ideas” approach. The fund currently has a big overweight to industrials (20.4 per cent v an index position of 8.4 per cent) and healthcare (10.4 per cent v 3.6 per cent) and is very underweight financials and energy. Although this is a fairly recently launched fund, Lau has a long and superb track record managing the First State Greater China Growth.
Asian markets have taken quite a battering over the past year, but provide a value opportunity for long-term investors and while the region continues to face headwinds, arguably the risks are priced in.
Ben Yearsley, investment director at Wealth Club:
PFS Downing UK Micro-Cap Growth fund (£21m)
Managed by Judith MacKenzie, this is a concentrated fund with 25 to 30 holdings – 28 at the moment. The manager is trying to apply a more private-equity approach to quoted companies, so she only invests in micro-cap firms that are under £100m – and typically under £50m – in size.
Ms MacKenzie is not taking board seats, but she’s not a passive investor who sits back and lets things happen. [The strategy involves] taking reasonable stakes and helping shape those companies, so it’s a hands-on approach.
You’ll find the holdings in many different types of companies, covering a range of sectors. It’s a broadly spread portfolio, despite the fact that there’s only 28 holdings. You’ve got support services, food producers, software, real estate, food and drug retailers, technology and telecoms. It’s an under-researched part of the market with lots of very interesting long-standing companies.
Particularly with this end of the Alternative Investment Market (Aim), time counts for a lot – you know the brokers, you know the companies. The manager has 15 years’ experience investing in Aim. It’s a niche product not in an expensive area of the market, not massively affected by Brexit or currency worries. It’s really interesting.
Why now? It’s not expensive. This space isn’t overly fished. Despite the fact that there are more micro cap funds now, lots of them focus on £100m+ and don’t go down to this level.
Ahmet Feridun, senior associate – investment strategy and research at Stonehage Fleming Investment Management: