If you have an idle moment, peruse the figures for the UK all companies sector since the start of the year. You will not find most of the top dozen funds on the recommendation lists of many IFAs. Why? This year's high-flying funds are mainly small and lack a three-year track record. For many financial practices, this means they are strictly out of bounds.
IFAs commonly refuse to recommend a fund with a capitalisation of less than £50m. So although there are a few big names among the top bunch – Invesco Perpetual, Standard Life and Schroders make the grade – they do not conform with requirements.
Of the first 12 funds in the sector, only Schroders' mid-cap fund, a £491m trust run by Andy Brough, is likely to have found its way into customers' portfolios. The others are considered too small or too niche.
Head of the pack is Invesco Perpetual UK aggressive, run by Ed Burke. This fund has racked up a 54 per cent return since the start of the year. But at £21m, much of which has been market gains rather than fresh money, it will not be among the best-selling funds this season. Nor will Cavendish opportunities, up by more than 50 per cent but just £8.8m in size.
Fractionally bigger at £8.9m, in third place is Standard Life UK opportunities, which is run by Mark Niznik, a former colleague of Burke's at Invesco Perpetual. This fund was launched last November with the minimum of fuss. So far this year it has gained 35 per cent.
Unicorn Free Spirit, a mere £11m, is probably more familiar to IFAs with a strong investment trust practice. This is a sort of open-ended version of the Eaglet investment trust run by Peter Webb, who specialises in smaller companies. Faithful to its name, Free Spirit has flown this year, producing returns of 35 per cent.
All these funds have been well placed to exploit the surge in the share prices of medium-sized and smaller companies as investors have switched into cyclical stocks. The FTSE 100 has gained 6.4 per cent since January 1 but the mid-cap 250 index has risen by 29.4 per cent and smaller companies by 32.2 per cent. The figures assume that investors have not reinvested their dividends.
There are plenty of sound reasons why IFAs are unwilling to recommend smaller funds with short track records. It is a natural fear that they will disappear as quickly as they materialised. Besides, clients are not aiming to squeeze every last bit of return from the market, they want a return that beats their benchmark, usually cash.
A reluctance to recommend launches may also owe something to the flood of new funds that hit the market in spring 2000, particularly in the technology sector. Arriving at the peak of the bull run, these trusts are deeply in the red. This experience is bound to colour the attitude of investors and advisers towards launches.
Nor are the smaller funds a must when there are plenty of established trusts performing so well. It is worth pointing out that all 300-odd funds in the all companies sector are in positive territory since the start of the year. Fidelity special situations, the £2.4bn monster run by Anthony Bolton, has gained 24 per cent this year, putting it in the top decile of performers.
However, I suspect that some of the reluctance to put the tiddlers of the fund world on the recommendation list is connected with compliance issues. The resources required to scour the full universe of funds in any degree of detail cannot be justified in most financial practices at a time when the cost of complying with regulations is rising. Without conducting such research, it is difficult to have any faith in your recommendations.
What happens if the small fund blows up? The repercussions for the adviser could be serious. When a big fund explodes, it somehow seems more damaging for the investment group than the adviser. Invesco took most of the media flak for the collapse of European growth, once the biggest fund in the industry, not the advisers who recommended it.
If you return to the performance tables, it is possible to see the dangers of recommending the small, unproven funds. Some of the worst performers in the all companies sector this year are also the products of little groups, most notably the Manek fund. This trust, launched by a former chemist from Ruislip, had a spectacular first year and then plunged to earth. It has stayed there ever since.
Richard Miles is deputy personal finance editor at The Times