The Marlborough UK Micro-Cap Growth fund may sound like a step into the unknown if you are wary of putting money into small companies.
Fund manager Giles Hargreave invests in firms that most investors will never have heard of.
Luckily for him, it would seem that many other fund-management groups are equally in the dark about this asset class.
Mr Har-greave said: “We see all the companies. They’re all dying to come and see us as they get very little contact from other potential investors.”
At just £23million, the fund is small by comparison to mainstream equity funds.
The manager said: “I have 80 holdings, so roughly £250,000 per stock, although I’m very keen on running profits if things are doing well.”
He cited his holding in Education Development International, first bought at 9p in March 2006, as an example.
“I’ve taken some profits along the way, but it’s risen so much that it’s still over 5% of the portfolio. This company owns the London Chamber of Commerce brand, which is licensed by the (UK) Government to set exams for vocational training.”
It is not difficult to see the appeal of this company in the current climate of rising unemployment and the need for people to retrain.
Mr Hargreave acknowledged that the volatility and lack of liquidity at the micro-cap end of the market can be concerning for investors.
He said: “There are plenty of things to worry about. Public spending cuts are going to be quite vicious but probably not until after the election.
“Unemployment could go to 3million, which will affect demand quite considerably, however, it may be that the government has done enough to prevent deflation.”
Micro-caps have done well this year for a couple of reasons, said Mr Hargreave.
“They’re cheap, having been damaged badly last year, with some down by up to 90%, while there has also been merger and acquisition activity and new management coming in.”
Since its launch in 2004, the fund has delivered an overall gain of 48.3% compared with an 11.22% gain by the average fund in the Morningstar UK Smaller Companies sector.
Barry O’Neill is a chartered financial planner with Thomson Shepherd. Contact him on 01224 619215