Mark Dampier: Franklin quartet play to their strengths to re-tune fund focus

 

The Franklin UK Managers' Focus Fund harnesses the in-house talent of four of Franklin's highly respected British team.

Following its launch in 2006, the fund endured several years of relatively average performance. Fortunately, it has seen somewhat of a renaissance over the past couple of years, boasting excellent returns since mid-2012.

The fund's distinctive name reflects its set-up. It is broadly allocated equally between four of Franklin's fund managers: Colin Morton investing in up to ten larger companies; Paul Spencer contributing up to ten medium-sized companies; Richard Bullas with up to 20 smaller companies; and Ben Russon who will hold up to ten companies of any size, depending on where he sees the best opportunities.

At first glance this may appear an unusual make-up, but the idea is for each fund manager to focus on selecting their best, highest-quality stock ideas from their specialist area of the UK market.

Broadly the fund is evenly split between large, medium and smaller companies. Over the long term the team would expect the small and mid-caps to perform best. Nevertheless, they appreciate these will also produce some of the worst performers given their higher-risk nature. Generally, flows into the fund are evenly distributed among the team, though rebalancing is done if a portion of the fund has performed well or poorly.

Inevitably, with a number of managers forming the line-up, there have been a few changes over time. Stuart Sharp, who previously ran the fund's smaller companies portion, left the firm in June 2012, being replaced by Bullas.

Sharp tended to take higher risks, taking bets which had the potential to succeed, but some would not pay off and could be particularly painful.

The fund has an overseer in Mark Hall, the previous manager of the Franklin UK Opportunities Fund (formerly the UK Select Growth Fund). He relinquished this position in June 2013 and effectively took up an analyst and 'oversight' role for the UK Managers' Focus Fund. He also works closely with Bullas on the Franklin UK Smaller Companies Fund and, among other responsibilities, organises company meetings.

This position seems to have suited him much better as he no longer enjoyed the pressures of day-to-day fund management. The team continue to benefit enormously from his experience and he acts as an essential resource.

The fund has enjoyed a great stock-picking year, but Morton, who I recently caught up with, admits they have also had a great tailwind behind them being invested in the right areas of the market – ie being overweight in small and mid-caps.

In particular, they have benefited from companies such as Xaar, Topps Tiles and Ashtead Group. They have also benefited by avoiding some poorer-performing sectors such as utilities, mining, oil and food retailing.

After all, some believe avoiding the losers is more important than trying to pick the winners!

I would perhaps not expect the fund to perform quite as well over the next 12 months or so given the valuations of small and medium-sized companies are now much higher. Many of the opportunities thrown out from the financial crisis have since been rerated; therefore, it will be a tougher job.

That said this is a strong UK team, which is largely unknown. This is mainly because, formerly under the guise of Rensburg and based in Leeds, the group undertook little marketing. Franklin's takeover of Rensburg in 2011 has pushed them further into the limelight.

The fund remains small at only £45m in size; perhaps a result of more average performance a few years ago. That is, in fact, more remarkable than you might think, given the fund fell to merely £8m a couple of years ago.

So, we have a nimble, flexible and concentrated fund, with some highly experienced managers at the helm showcasing their talents, and supported by a strong parent. that's a nice mix, in my book.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk

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