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Best in Class: Shining light in tough times

Best in Class: Shining light in tough times

Next week marks the first anniversary of the Brexit vote: a year since the FTSE 100 was shocked into a panic that lasted just a weekend, falling 4 per cent before it recovered.

Aided by a weak pound, the UK’s largest companies have collectively been reaching new record highs ever since. The fate of our medium-sized companies was a bit more dramatic. The FTSE 250 (ex IT) index fell almost 15 per cent in the days immediately following the EU referendum and the index took a good six weeks to get back to square one. However, it too went on to better things and reached a new high on May 26.

With the Investment Association now mulling a separate category for UK mid-cap funds, I thought I would focus this week’s Best in Class on my favourite fund of this ilk, Neptune UK Mid Cap.

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I have been a fan of the manager, Mark Martin, for a number of years, touting him as a star of the future since 2012. The fund was launched at the end of 2008, slap bang in the middle of the global financial crisis, so to say Mr Martin had a baptism of fire as a fund manager is an understatement.

But he has been successful, making money in some very tough and unusual conditions. When the index fell so dramatically in the aftermath of the referendum last year, this fund fell just 7.7 per cent.

This has been a pattern over the years, with the fund tending to outperform in falling markets. It is now up 13.1 per cent on pre-Brexit vote levels.

Mr Martin had reduced his consumer discretionary holdings pre-Brexit, which subsequently sold off heavily and which he then picked up again at cheaper prices.

Indiscriminate selling at the time threw up numerous opportunities and – while he was not holding materials and financials stocks at the start of 2016, when they subsequently rallied – Mr Martin used the post-Brexit sell-off to take positions in wealth and asset managers too. 

His assistant manager on the fund, Holly Cassell, is another who has been tipped for greater things, reflected recently in her promotion to co-manager on the strategy. She is extremely knowledgeable about all the companies held within the fund, as well as the wider market, answering questions articulately and with ease.

Obviously, investing in mid-cap stocks does come with additional risk and volatility, and because the managers can also consider any of the top 50 FTSE Small Cap index constituents, this will add to the risk.

The fund construction is very balanced, though, with at least 20 per cent of the portfolio invested in three different silos. It is also a high-conviction fund. Normally, no more than 30 per cent would be invested in any one sector, but the managers may make an exception if they believe the investment case to be particularly compelling.

Individual stock weightings in theory are typically 3 per cent to 5 per cent, but have, in practice, often been higher, rising to an absolute maximum of 10 per cent.