Aim: Growth by investing mainly in companies within the Hoare Govett smaller companies plus Aim index
Minimum investment: Lump sum £1,000
Investment split: 100% in UK smaller companies
Isa link: Yes
Charges: A shares – initial 5%, annual 1.75%, B shares initial 5%, annual 0.75%, performance fee 20%
Commission: Initial up to 3%, renewal 0.5%
Tel: 020 7306 3901
The CF Acuity RAM Fund aims fo growth by investing in a concentrated portfolio of around 20 to 30 companies, all under £150m.
Introducing the fund, Arch Financial Planning managing director Arthur Childs says: “The word acuity includes sharp-sightedness and acuteness. No doubt these are characteristics that the company wishes to bring to its selection of investments, especially given the difficulties of dealing with small and particularly companies listed on Aim.”
Childs points out that people who have not come across this company before should know it was formed as the result of a buy-out from Electra Partners, which he says is a fairly well known venture capital trust provider.
“Given the background to the company it will be no surprise to see that its first fund launch consists primarily of companies within the Hoare Govett Smaller Companies and Aim indices. The fund’s benchmark is 40 per cent FTSE Small Cap and 60 per cent Aim,” says Childs.
He notes that the fund is managed by two experienced smaller companies professionals. “Nicholas Ross, a founding partner of Acuity, was formerly with Electra Partners for 15 years where he was responsible for the launch of the Electra kingsway VCTs. Judith MacKenzie joined Acuity just over two years ago from Aberdeen Asset Management where she had spent seven years as co-fund manager of the Aberdeen VCTs. She has summed up their investment style by saying that the smaller companies market is typically an imperfect market with poor information flow and inadequate research. She says that makes it the perfect place for bargain hunting.”
Around 10 per cent of the portfolio will be in very small special situations; 60 per cent will be in companies below £75m in size and 30 per cent will be in the bigger end of the small companies sector. “This latter portion is likely to have the highest turnover with managers generally looking to take a profit once a 30 per cent gain has been achieved,” says Childs.
As would be expected, Childs says UK smaller companies and particularly Aim stocks, have suffered much more than bigger companies since the onset of the credit crunch and the subsequent steep market declines. “Long-term investors will be aware that once the UK economy starts to recover it could reasonably be expected that smaller companies will lead the way in terms of capital growth. Of course, if the hoped for recovery is delayed then we can expect many of these smaller companies to fail,” he says.
The charges at 5 per cent initial and 1.75 per cent annual, or 0.75 per cent plus 20 per cent performance fee are typical for a smaller companies fund in Childs’ view. Commission is regarded as standard.
Turning to the less appealing features of the fund Childs says: “It is difficult to recommend this fund to any but the most adventurous investors at present because of the small size of the fund, currently less than £4m. The Electra/Acuity track record in VCTs is not outstanding such that investors would want to take the risk of investing in such a new fund.”
He adds that this fund launch was an obvious one for Acuity, given its background, but he thinks it has been launched into a fairly inhospitable market place as far as smaller companies funds are concerned.
Childs feels there is some serious competition for this fund and few reasons not to invest in the funds which have already established a superior track record. He suggests Standard Life UK Smaller Companies, Old Mutual UK Select Smaller Companies, Marlborough Special Situations and Marlborough UK Micro Cap as possible competitors.
Summing up Childs says: “The problem with smaller companies, and in particular those listed on Aim, is that of liquidity, or rather the lack of it. This has been adequately demonstrated recently by the debacle over the funds of our unrelated namesake Cru Arch. “
He says that most investors are underweight in smaller companies. “According to most asset allocation models, all but the most conservative investors should have some exposure to UK smaller companies. For clients willing to invest over a longer timescale, the case for investing in smaller companies is all about hoping that you hold shares in the next Microsoft. “
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Average