First 50 Funds: Marlborough UK Micro-Cap Growth

24 May 2017

What is the Marlborough UK Micro-Cap Growth fund?

Giles: The fund was started in October 2004 because one of Marlborough’s other funds – the Special Situations fund – was focusing more on mid-cap [medium companies] investing. So we needed a solely small-cap [small companies] fund. It started with about £50 million and today it holds about £780 million. It’s been one of the most successful funds since that time and it’s a very consistent performer.


We tend to run a well-diversified portfolio, and we rarely have more than 3% in any one stock – 2% is normal – this is to prevent the impact if companies fail. We also do a lot of research on the companies we pick – we currently invest in about 250.

What do you look for when buying companies for the fund?

Guy: We’re looking for product, track record of the firm’s management, and market opportunities. I’ll look at a toilet company in Kazakhstan if I think it’ll make money.

Giles: We very rarely invest in a stock without having met a company. And as we’re one of the largest small-cap funds all the companies want to come and see us. We’re very popular.

What’s your investment style?

Giles: Our general style is to buy a small amount of stock initially to get used to the company and then gradually average up the position. If we know the company, we might add more to start with. So we start with, say, half a per cent of the portfolio or three quarters of a per cent.

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What companies have you recently bought?

Giles: We’ve recently been buying IQE, a company that manufactures computer chips for mobile phones.

Guy: We’ve been buying Purple Bricks, an online estate agency. It’s a lot cheaper than traditional high street agents and it’s an example of an internet-based disruptor affecting an industry. This is what ASOS did for retailers. Now, Purple Bricks is going into the US, which is seven to 10 times bigger than the UK market.


Giles: We’ve also been investing in Impax Asset Management, a company that has ‘green’ portfolios that are becoming very popular. The stock was very underpriced, so this was more of a value buy than a growth situation.

What companies have you recently sold?

Giles: In terms of selling, we’ve sold a bit of Fever Tree [a tonic drink manufacturer]. It’s not because we don’t like it; it’s because of the size of the holding, and we’ve made an enormous amount of money on it already. It’s grown at a very rapid rate, but it’s unlikely to grow quite as fast this year.

Guy: Blue Prism – a software company that makes virtual robots. Where you’ve got backoffices with humans changing Sim cards or performing credit checks, you can replace that human with a piece of software, which is cheaper.


Huge companies love this as it saves money and machines are less likely to make mistakes or go off sick. But as the market got overexcited, we sold some of our holding.

What’s the fund’s best investment?

Giles: Fever Tree. It’s very popular, not just in the UK but worldwide. Its share price was £1.34 two years ago and it’s now [on 24 March] £14.70.

What’s the fund’s worst investment?

Giles: Lots of stocks have gone wrong on us, which I don’t want to mention. But the worst is to lose out, buy some more shares, and then lose some more; that’s something we try to avoid.

What’s your top tip for a beginner investor?

Giles: First of all, I’d recommend investing in small caps via a fund. Bear in mind that small caps are volatile, so don’t invest more money than you can afford to lose, and meet a financial adviser to work out the amount of risk you’re willing to take for your situation.

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In terms of individual stockpicking, that requires quite a lot of experience. Follow Jim Slater’s ‘Zulu Principle’ where you make yourself an expert in one sector in the market. You might go and see some estate agents, for example, and work out whether Purple Bricks is a competitor or a flash in the pan.


Marlborough UK Micro-Cap Growth Fund Key Stats

Launched: 2004
Fund size: £743.5 million
Ongoing charges: 0.80%*
Source: Marlborough
UK Micro-Cap Growth factsheet, March 2017

*Source: Moneywise

The team behind the fund

The team behind the fund Giles Hargreave has managed the Marlborough UK Micro-Cap Growth Fund since its launch and comanages the Marlborough Special Situations and Marlborough Nano-Cap Growth funds. He has also founded investment management company Hargreave Hale.

Guy Feld has over 20 years’ City experience researching and managing small- and mid-cap equities. He has worked on the Marlborough UK Micro-Cap Growth Fund since launch and was appointed co-manager just over five years ago.

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