Threadneedle Investments has unveiled the UK mid 250 fund, an Oeic which aims for growth by investing in a portfolio of between 50 and 80 stocks.
The fund will be managed by the Threadneedle smaller companies team led by Paul Cramp. Although the fund will invest mainly in UK mid caps, it may also invest in small caps with the growth potential to become mid caps.
Threadneedle says mid caps and small caps are not completely separate as around 70 per cent of the companies which make up the FTSE 250 index are also found in the Hoare Govett smaller companies index.
The Hoare Govett index is the benchmark for Threadneedle's UK smaller companies growth fund and Threadneedle believes the team's experience in managing this fund will help when selecting stocks for the new fund.
Stock selection will be based on a combination of top-down and bottom-up analysis. The top-down approach drives the sector position and the bottom-up approach will be used to select the best stocks within the identified sectors. No stock will be included in the portfolio unless the smaller companies team have met that company's management.
Cramp and his team will initially take an overweight position relative to the FTSE 250 index on mining, telecommunications and construction stocks. Construction stocks are favoured because of public sector investment within the industry. The fund will be underweight in retail, food producers and utilities because these are too defensive to achieve the best returns during the recovery point in the economic cycle.
The experience of Cramp and his team will be useful if the best opportunities are found at the smaller end of the mid-cap market. However, the fund's overlap with small caps increases the risk as well as potentially enhancing the returns.