Investor Views: ‘Small-Cap Funds Helped Me Buy my…


Will Garfield has just emptied his Isa account to help him buy a new home with his partner, who is expecting their first child later this year.

Will, who will be 40 this year, says these investments have been invaluable; they helped him buy the property he wanted in Chepstow, Wales. But, he is now keen to start rebuilding his investments again, to help ensure his family is financially secure in the long term.

A strong saving habit was ingrained in Will, who works in IT management, from a young age. “I started working at 18 have been saving now for 22 years. My parents always told me to save 10% minimum of whatever I earned.”

This habit stuck. He still looks to invest this percentage of his take home pay into his Isa via a monthly direct debit, and makes an 8% contribution into a company pension as well, which he points out is matched by his employer.

Newspapers as Inspiration

When it comes to what to fill his Isa with, Will has chosen to invest in a range of funds. “Ultimately I look for a safe steady return as I am a low-risk investor. I think that maybe this is because my father was a prudent accountant, and he helped me set up this Isa initially.”

Although he took advice from his parents at the outset, Will also looks for investment ideas in the financial sections of the weekend newspaper. “I also (sometimes foolishly) read the chat forums on websites like Reddit and probably pay too much attention to the chatter around stocks.”

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Foolish or not, this approach has delivered excellent returns. Will says he has had “great success” with a number of smaller company funds, including IFSL Marlborough UK Micro Cap Growth and Liontrust UK Smaller Companies.

The Marlborough fund has a four-star rating from Morningstar, and its Morningstar Quantitative Rating ranges from Negative to Neutral, depending on the share class. This is mainly due to high fees structure. But, the performance of the fund has been strong, with exceptionally buoyant returns during 2020 and the first three quarters of 2021. The returns have dipped since, but performance data reveals that the fund has delivered annualized returns of 13.09% over the past 10 years .

The Liontrust UK Smaller companies fund has enjoyed a similar performance, delivering annual returns of 12.35% over five years and 15.95% over 10 years. Again, it enjoyed strong gains during 2020 and the early part of 2021, when the sector performed particularly well.

This fund has a Morningstar Analyst Rating of Bronze, and manager research analyst Bhavik Parekh describes it as being run by a “stable and experienced team”. he adds: “[Its] consistent, proven approach means that Liontrust UK Smaller Companies remains a strong proposition in the UK small-cap space.”

Will has also made strong gains from his holding in Gold-rated Fundsmith Equity, which focuses on large-caps. While Fundsmith has a global remit, Will says he has also invested in specific overseas regions, including holdings in European, Asian and emerging market funds.

Timing the Market is Difficult

After the property purchase, Will is now looking to rebuild his savings. “I had to sell everything to buy my new home and have now effectively started again with my Isa. I am sticking with the same or similar funds and aim to build up again. I don’t expect to move house or anything again and so I’m now saving for retirement with my Isa and pension.”

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Selling out of these holdings wasn’t necessarily an easy process though. “My new house sale was looming and I needed to cash in. So, I slowly started selling, but found it stressful as I was never sure if I was timing it right.

“In the end, the house move went very quickly and so I was forced to sell at the beginning of the year. I was lucky in many ways because the market has since failed.”

Will says he has always had his Isa with Chelsea Financial Services. “My dad used them for years and recommended them to me. I like the personal service that you get for them. I really wouldn’t have been able to buy my house without this Isa. They have a website I can log into as well, and I use their fund selections to help choose some of my own investments.”


www.morningstar.co.uk

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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