Mark Dampier: Looking to smaller firms to lighten stocks gloom

The Analyst

I have rated Giles Hargreave highly as a stock picker for many years. His Marlborough Special Situations and UK Micro-Cap Growth Funds have been exceptional, and I was therefore excited by the launch of the new Marlborough Multi Cap Income Fund in June last year. The fund, managed by Giles Hargreave and Siddarth Chand Lall, aims for a combination of income and capital growth, blending established dividend payers with exciting smaller company stocks.

Last summer was a difficult time to launch a new fund. The fear of a global macroeconomic slowdown and an intensification of the eurozone debt crisis caused severe volatility, and the market now stands significantly lower than it did when the fund launched. However, it was important to establish a dividend stream as early as possible to provide investors with a reasonable first income payment. The managers therefore invested around two thirds of the money fairly quickly with the remainder following over the next quarter. Given the turbulent conditions, the fund has held up fairly well.

Running an income fund is a slight departure for Mr Hargreave as he tends to look for small, growth-orientated companies. Yet in his research he sees plenty of firms with good dividend records, so applying his expertise to this area should be a natural progression for him. With the majority of the portfolio devoted to small and medium-sized companies it is also genuinely different to most equity income funds, which means it dovetails nicely with some of the better-known funds in the sector, such as Invesco Perpetual High Income, Artemis Income and PSigma Income. They are all larger company orientated, whereas Marlborough Multi Cap Income has only around 10 per cent invested in FTSE 100 companies.

A focus on smaller companies can, of course, increase risk. To help reduce it, the fund has a wide spread of holdings – well over 100. There is no shortage of opportunities. The FTSE 100 contains 91 dividend-paying firms, but cast the net across the whole UK market and there are 717 companies to consider. Mr Hargreave looks for a dividend yield of at least2 per cent and a growing payout, which cuts down the field to around 500.

At 63, Mr Hargreave is the oldest in the team, and there is a good mix of experience and up-and-coming talent. Siddarth Chand Lall, for instance, is 32, but the other four members of the investment team have over 125 years of market experience between them, and all are involved in meeting company management. This is at the heart of their process and they typically meet 25 companies a week between them, often using Mr Hargreave's long-established contacts.

In a recent update with the team, I was intrigued to see how they felt about the current economic situation. While this is primarily a stock-picking fund, it is impossible to ignore the wider picture, especially at the moment. Indeed it is often useful to hear about the insights they receive from company management. Interestingly, I found the team quite bullish. Many companies are trading well, with the environment notably improving in the US. Naturally sentiment could take a turn for the worse given what is going on in the eurozone, but Mr Hargreave is finding many companies at attractive valuations.

The fund will not be as aggressive as the Marlborough Micro-Cap Growth or Special Situations funds, but an estimated yield of more than 4 per cent should be attractive to many investors, especially given that the income should grow over the longer term. In addition, a handful of stocks in the fund are non-dividend payers where the team have identified the potential for dividends to be introduced, potentially providing additional uplift.

The fund has shown a pick-up in performance recently, clawing back some of its initial losses. With so much pessimism in this market any kind of sentiment change is likely to have a big impact on many of the companies the fund owns, so it's definitely one to tuck away for the long term, in my view.

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 hl.co.uk/independent

PROMOTED VIDEO
Arts and Entertainment
Characters in the new series are based on real people, say its creators, unlike Arya and Clegane the Dog in ‘Game of Thrones’
tv'The Last Kingdom' is based on historical events
News
people
Arts and Entertainment
filmSir Ian McKellen will play retired detective in new film
Life and Style
tech
News
Justin Bieber performing in Paris earlier this year
people
Arts and Entertainment
Martin Freeman and Lauren O'Neil in Jamie Lloyd's Richard III
theatreReview: The monarch's malign magnetism and diabolic effrontery aren’t felt
Arts and Entertainment
'Molecular Man +1+1+1' by Jonathan Borofsky at Yorkshire Sculpture park
tv
News
Glamour magazine hosts a yoga class with Yogalosophy author Mandy Ingber on June 10, 2013 in New York City.
newsFather Padraig O'Baoill said the exercise was 'unsavoury' in a weekly parish newsletter
Extras
indybest
News
people'She is unstoppable', says Jean Paul Gaultier at Paris show
Sport
Alexis Sanchez and apparently his barber Carlos Moles in Barcelona today
football
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Financial Accountant-IFRS-Gloucester-£300/day

    £250 - £295 per day + competitive: Orgtel: Financial Accountant - IFRS - Glouc...

    SharePoint/C# Developer - Aberdeen - Circa £40K + benefits

    £30000 - £40000 per annum + excellent benefits: Deerfoot IT Resources Limited:...

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    HR Advisor - 6 months FTC Wimbledon, SW London

    £35000 - £40000 per annum + Benefits: Ashdown Group: HR Advisor - 6 Months Fix...

    Day In a Page

    The true Gaza back-story that the Israelis aren’t telling this week

    The true Gaza back-story that the Israelis aren’t telling this week

    A future Palestine state will have no borders and be an enclave within Israel, surrounded on all sides by Israeli-held territory, says Robert Fisk
    A History of the First World War in 100 Moments: The German people demand an end to the fighting

    A History of the First World War in 100 Moments

    The German people demand an end to the fighting
    New play by Oscar Wilde's grandson reveals what the Irish wit said at his trials

    New play reveals what Oscar Wilde said at trials

    For a century, what Wilde actually said at his trials was a mystery. But the recent discovery of shorthand notes changed that. Now his grandson Merlin Holland has turned them into a play
    Can scientists save the world's sea life from

    Can scientists save our sea life?

    By the end of the century, the only living things left in our oceans could be plankton and jellyfish. Alex Renton meets the scientists who are trying to turn the tide
    Richard III, Trafalgar Studios, review: Martin Freeman gives highly intelligent performance

    Richard III review

    Martin Freeman’s psychotic monarch is big on mockery but wanting in malice
    Hollywood targets Asian audiences as US films enjoy record-breaking run at Chinese box office

    Hollywood targets Asian audiences

    The world's second biggest movie market is fast becoming the Hollywood studios' most crucial
    Grindr founder Joel Simkhai: 'I've found love on my dating app - and my mum keeps trying to hook me up!'

    Grindr founder Joel Simkhai: 'I've found love on my dating app'

    Five years on from its launch and Grindr is the world's most popular dating app for gay men. Its founder Joel Simkhai answers his critics, describes his isolation as a child
    Autocorrect has its uses but it can go rogue with embarrassing results - so is it time to ditch it?

    Is it time to ditch autocorrect?

    Matthew J X Malady persuaded friends to message manually instead, but failed to factor in fat fingers and drunk texting
    10 best girls' summer dresses

    Frock chick: 10 best girls' summer dresses

    Get them ready for the holidays with these cool and pretty options 
    Westminster’s dark secret: Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together

    Westminster’s dark secret

    Adultery, homosexuality, sadomasochism and abuse of children were all seemingly lumped together
    A History of the First World War in 100 Moments: Dulce et decorum est - a life cut short for a poet whose work achieved immortality

    A History of the First World War in 100 Moments

    Dulce et decorum est: a life cut short for a poet whose work achieved immortality
    Google tells popular music website to censor album cover art in 'sexually explicit content' ban

    Naked censorship?

    The strange case of Google, the music website and the nudity take-down requests
    Howzat! 8 best cricket bats

    Howzat! 8 best cricket bats

    As England take on India at Trent Bridge, here is our pick of the high-performing bats to help you up your run-count this summer 
    Brazil vs Germany World Cup 2014 comment: David Luiz falls from leader figure to symbol of national humiliation

    David Luiz falls from leader figure to symbol of national humiliation

    Captain appears to give up as shocking 7-1 World Cup semi-final defeat threatens ramifications in Brazil