FTF MARTIN CURRIE UK SMALLER COMPANIES FUND: ‘Great time to buy’

Thursday’s rate hike was not good news for investors in funds exposed to smaller UK companies. As a general rule, such funds struggle when interest rates rise and the economy stagnates, but they outperform when they fall and recovery is in the air.

Yet there are a number of managers of such investment funds who think that a glimmer of light is on the horizon. With interest rates getting closer to a peak, they think it won’t be long before the UK’s smaller business sector catches the eye of investors big and small.

In this camp is Dan Green, co-manager of the FTF Martin Currie UK Smaller Companies Fund. Over the past year, this £199 million fund has lost 19 per cent – ​​slightly higher than the average UK smaller company fund’s 16 per cent loss.

“Over the past year there has been an indiscriminate sell-off of British smaller company shares,” says Green. ‘There is no distinction between good and bad companies. There is so much pessimism built into current prices.’

He adds: “Yes, corporate profits will fall if the economy plays with a recession, but they won’t fall as much as some fear. As managers, we believe that some company valuations are now so low that they present attractive buying opportunities.”

The Martin Currie fund has 41 holdings. In general, it excludes companies that have yet to turn a profit. Nor will it affect energy companies, biotech stocks or companies that focus on natural resources.

“We’re looking for proven business models,” says Green, who co-leads the fund with Richard Bullas. ‘We also want to see the growth potential. Ultimately, we want the company to make the transition from a small cap to a large cap stock.”

Most holding companies have market capitalizations between £100 million and £1 billion. But if companies are successful and grow their market capitalization above £1bn, Green and Bullas are happy to keep them. It explains why airline Jet2, metal heat treatment company Bodycote, tech company RWS and financial specialist JPC are still owned by the fund.

In terms of market capitalization, Jet2 is the largest in the fund at £2.7bn. “We bought the share in May 2020 after the share price fell below £5 in response to travel restrictions imposed due to Covid-19,” says Green.

“Now the share price is above £12. It’s a great company and I think in the next 12 months it will become the largest package tour company in the country, overtaking Tui.”

The stake in Jet2 makes it a top ten fund holding company. Another successful holding company is Ergomed, a company that conducts drug trials on behalf of some of the world’s largest pharmaceutical companies.

The fund’s stake was acquired in June 2020 at a share price of around £4 – and the shares are now trading at over £12.

“We saw that the company’s margins would improve,” says Green. ‘We also like that management owns a large share of the shares. Although we have been taking profit since the end of 2021, it still represents 1.6 percent of the fund’s assets.”

The fund is managed from Martin Currie’s UK investment team based in Leeds. Martin Currie, in turn, is part of global asset manager Franklin Resources.

The ongoing annual costs are 0.82 percent. Over the past five years, the fund has posted gains of 11.8 percent. UK smaller corporate funds with better five-year records include those from asset managers Fidelity, JPM and Liontrust.