If you’re looking to inject some capital growth into your portfolio, and are comfortable with the associated risks, you might want to consider a UK micro cap fund.
Well, a micro cap fund invests in small UK companies, and would typically include companies listed on AIM, the London’s Stock Exchange’s junior market.
And we think these companies offer investors something different.
Here are our top three reasons to add a micro gap growth fund to your portfolio.
Smaller companies grow their earnings faster. That means the share prices have a better chance of increasing at a faster rate. So over the long term, they could potentially outperform larger companies.
This is certainly the case in the UK. In fact, over the last 20 years, the IA UK Smaller Companies sector has been the second fastest growing of all sectors.*
One reason for this is smaller companies can use modern business models and new technology to service more customers at a lower cost. This is often globally. It might surprise you that the AIM market generates more than half of its revenues from outside the UK.**
Smaller companies, by virtue of their size, can often make decisions more quickly than larger ones.
It means they can be more flexible and they are often better able to adapt to shocks. This is particularly relevant in periods of economic turbulence.
This flexibility also helps them take advantage of opportunities, such as a weakness in a legacy industry. Innovative, high-growth companies can disrupt industries dominated by larger companies.
This all means that different sized companies will perform and react to events in different ways. So it pays to have investments in large and small companies.
One way to achieve these diversification benefits is to hold a micro cap growth fund alongside other funds in a long-term investment portfolio, for example your ISA or SIPP.
Smaller company investing is a space that an active fund manager can add value in.
While larger stocks are priced efficiently, the kinds of companies you find on the AIM market are often under-researched and under-valued. That’s why an experienced investment team can consistently add value over the long term.
A specialist investment team can find value across the spectrum of AIM. That’s whether it’s a firm that’s already a success story and has grown to a fair size, or a younger, recently-listed firm.
The FP Octopus UK Micro Cap Growth Fund is managed by the Quoted Smaller Companies team at Octopus Investments. Led by Richard Power, who has more than 20 years’ experience in smaller company investing, the team manages more than £1.6 billion across several products. Many of these products focus on AIM companies, an area of expertise for the investment team.
While the Quoted Smaller Companies team itself has significant assets under management, the FP Octopus UK Micro Cap Growth Fund remains relatively small, especially compared to other funds in the sector.
This is important, because this means the fund is not constrained by its size. By being smaller, the fund has greater scope to take the kind of positions it needs to in companies at the smaller end of the UK market spectrum.
You can see the strong performance of the fund in the table below. But please be aware that past performance is not a guarantee of future returns.
The value of any investment can fall or rise, and you may not get back the full amount you invest. Smaller company shares are also likely to fall and rise in value more than shares in larger, more established companies listed on the main market of the London Stock Exchange. They may also be harder to sell.
|Q4 2017 - Q4 2018||Q4 2016 - Q4 2017||Q4 2015 - Q4 2016||Q4 2014 - Q4 2015||Q4 2013 - Q4 2014|
|FP Octopus UK Mcro Cap Growth||-2.9%||34.9%||10.6%||5.2%||-4.2%|
|IA UK Smaller Companies sector||-11.8%||26.7%||8.6%||14.8%||-1.8%|
Source: Lipper. Returns are based on published dealing prices, single price mid to mid with net income reinvested, net of fees, in sterling.
*Portfolio Adviser ‘A smaller sector that punches above its weight’. February 2019
**Factset February 2019
Our investments are not suitable for everyone. We do not offer investment or tax advice. Personal opinions may change and should not be seen as advice or a recommendation.
Before investing you should read the Prospectus, the Key Investor Information Document (KIID) and the Supplementary Information Document (SID) as they contain important information regarding the fund, including charges, tax and fund specific risk warnings and will form the basis of any investment. The Prospectus, KIID and application forms are available in English at octopusinvestments.com. The Authorised Corporate Director (ACD) of these funds is FundRock Partners Ltd which is authorised and regulated by the Financial Conduct Authority no. 469278, Registered Office: 8/9 Lovat Lane, London EC3R 8DW.
Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. CAM007988.