This is one of the largest and most successful funds in the IA UK Smaller Companies sector. It is managed by the renowned Hargreave Hale team and has delivered exceptional performance for investors since its launch in 2004. The fund is well diversified and typically holds onto its best performing stocks.
Our opinion
This is one of the standout funds in the sector. The Hargreave Hale team is renowned for its small-cap expertise and has delivered exceptional performance for investors over a very long period. The team has a proven capability of adding value through stock selection as a result of company meetings and diligent research. Investors should be aware that this fund is a unit trust, and because it invests in small-caps, it is sometimes subject to swings between the bid and the offer price depending on fund flows.
Company description
Marlborough Fund Managers offers investments across various asset classes, ranging from UK fixed interest to international equities and exchange traded funds (ETFs). It was awarded the Elite Provider for Equities rating each year from 2016 to 2021. Marlborough’s managers are hand-picked and given freedom to invest as they feel optimal in the fund’s sector.
Hargreave Hale, who are investment managers for some of Marlborough’s funds, are a merger of Hargreave Investment Management and Hargreave Hale & Co, the former having been founded in 1986. The management of this fund is outsourced to the Hargreave Hale team, who are recognised specialists in the small-cap space.
Fund manager
This fund is co-managed by Guy Feld and Eustace Santa Barbara. Guy has more than 20 years’ experience investing in small caps. He joined Marlborough in 2003 and became co-manager of the UK Micro-Cap Growth fund in February 2012. Guy's specialist area is tech and growth stocks. Eustace has co-managed this fund since January 2021, having joined the company in December 2013, and previously worked as senior investment manager at Close Brothers Asset Management. Giles Hargreave, who had managed the fund since launch, stepped back from his role in January 2021, but continues to lead the team’s weekly investment meeting.
Nothing better than a growth stock on a value rating.
Guy FeldFund manager
Investment process
The team uses its views on the wider economy to filter out large numbers of stocks and sectors, before undertaking thorough company meetings and analysis. Hargreave Hale is a small-cap specialists and takes advantage of the lack of research coverage on most micro and small-cap stocks to uncover opportunities that the market may have missed. Marlborough UK Micro-Cap Growth fund typically holds around 200-250 companies to reduce stock-specific risk. Relatively small positions are taken initially, and the managers will then run their winners aggressively, adding to them as their story unfolds. Conversely, losers will be cut quickly. A large portion of the fund is invested in micro-cap companies with most of the remainder in small-caps. Unlike its older brother, Marlborough Special Situations, this fund has only a very small exposure to medium-sized companies.
ESG
ESG - Limited
Guy and Eustace have a strong focus on governance with this fund. This is particularly important in the smaller companies space, as management decisions can have a significant impact on a business’ operations and outcomes. As such, the managers spend considerable time with the management teams behind potential investment companies to understand how they treat employees, suppliers and customers as well as their attitude towards their company’s impact on wider society. They specifically look at board composition, and do not like seeing one individual filling both the CEO and Chairman role, or too many unnecessary non-execs. They will often work with boards to improve these factors. Both Guy and Eustace will look for red flags relating to ESG matters, such as environmental pollution, high staff turnover and questionable payment policies, which will greatly reduce the investment appeal, though this is on a case-by-case basis rather than a standardised checklist.
Risk
IFSL Marlborough UK Micro-Cap Growth fund is extremely well diversified across 200-250 different holdings. This greatly reduces the potential damage any one stock can cause to the portfolio. Overall the fund is a bit more risky than other UK small-cap peers. This is simply because it invests further down the market-cap spectrum due to its large weight in micro-caps.
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