I am sure most people have heard of middle child syndrome. It is the belief that middle children are excluded, ignored, or even outright neglected because of their birth order.
The theory is that the oldest child is the authoritarian burdened with the highest expectations, while the youngest is the spoilt baby who never rises above their siblings. Then there is the one in the middle – he or she is even-tempered but has trouble fitting in due to being sandwiched between the younger and older siblings.
It is an argument that can be extrapolated over to the investment world in recent times. Large and even mega-cap growth companies have stolen the headlines due to their unprecedented levels of growth, while smaller companies have proven themselves to be exceptionally resilient globally.
Then we have mid-caps. For investors, a mid-cap company may be appealing because they are expected to grow and increase profits, market share, and productivity – they are in the middle of their growth curve. They are deemed to be less risky than small-caps, but more risky than large-caps.
“It’s an area of the market that is home to a diverse range of market leaders with their own niches, yet there remain a lot of inefficiencies as the market is under-researched versus its larger peers, meaning we can find a lot of hidden gems.”
That is the view of this week’s best in class co-manager Anjli Shah, who runs the Aberdeen Standard SICAV I – Global Mid-Cap Equity fund alongside industry veteran Harry Nimmo.
This fund is an extension of Abrdn’s successful small and mid-cap desk and targets the next 15 per cent in market cap size up from smaller companies. This is through the MSCI All Companies World Index, which consists of 49 different countries with an investment universe of roughly 1,500 stocks to choose from.
There are three sources for ideas to populate the portfolio. The first of these are the ‘small cap graduates’. These are companies the team knew well as a small-cap business. “The frustration with small-caps is you are forced to sell if you are successful as they graduate into the mid-cap space,” adds Shah, who says the "graduates currently account for a third of the fund".
The small-cap team has an exceptional track record, so this really does give the managers a helping hand as they are already aware of the management teams and business models of these ‘graduates’.
The second source is ideas from the global Abrdn network. Here, the managers lever the work already completed by their colleagues, by simply adding their own analysis. Thirdly, there will be some totally new ideas from the Matrix – Abrdn’s proprietary system that looks for quality, growth and momentum factors – or as spin-offs from research into other companies.
This creates an ideas shortlist of around 300 companies. From here, the managers will conduct their own deep-dive analysis.
Once ideas are analysed they are debated amongst the whole team, with the best ideas going through to a preferred list that will populate the portfolio.
The final portfolio typically holds between 40 to 50 stocks. The process will favour the likes of consumer staples, consumer discretionary, health care, technology and industrials as the team says innovation is more prominent in those sectors.
Holdings currently range from the likes of JD Sports to EPAM Systems, a business based in Belarus – but with a US listing – which focuses on helping corporates digitalise their operations.
At least 70 per cent of the fund will be in the mid-cap benchmark at all times, but the managers will hold stocks for up to a year once they graduate from mid-cap index into larger companies.
Ongoing charges on the portfolio stand at 0.99 per cent.
I feel this fund really does have a huge advantage over many of its peers given the excellent small-cap team it already possesses. It is an ideal option for pure exposure to a quality growth portfolio of medium-sized companies.
Darius McDermott is managing director of FundCalibre
