Fund Manager Focus by Pauline McCallion

Launched in October 2004, the Marlborough UK Micro Cap Growth Fund was created to plug a gap in the market identified at the time by Hargreave and his team. ‘We felt it was an area that very few fund managers were interested in,’ he explains, ‘and we believe this means the sector will throw up more opportunities.’ Recently, those opportunities have largely been in the environmental, technology and internet advertising sectors. ‘The environmental sector is not one to be missed and there are various opportunities as it contains a lot of early-stage companies,’ Hargreave explains. ‘Internet advertising companies are also very interesting to us. We currently hold Internet Business Group [a software and computer services company] and Digital Marketing [a media agency]. There is growth in advertising on the internet, while TV and newspaper advertising is under pressure, so this is a good area to be in.’

In terms of firms involved in environmental activities, Hargreave lists some of the fund’s recent acquisitions: ‘Enfis Group makes next-generation lighting technology,’ he says. ‘It is a green stock and we bought it at float quite recently. Energetix Group is an energy conservation firm that has developed a new style of boiler.’

Spread the risk

Hargreave admits that the management team don’t tend to build up massive exposure to any one stock in particular. ‘We wouldn’t hold more than two per cent per stock as we like to have a spread,’ he continues. ‘This is because if something goes wrong, stocks don’t tend to go down by 10 or 20 per cent but by a lot more.’

A team of five people work across all Marlborough’s funds, allowing expertise to be drawn from a variety of areas. As a result, the micro-cap fund doesn’t really stick to any specific sectors. ‘For instance, Guy Feld is more interested in technology, so his input is important in this fund as many micro-cap companies are in this sector,’ Hargreave explains.

He highlights Feld’s input into several recent stock picks, including Intelligent Environments, a software producer involved in financial projects. ‘We bought this share at about 2.75p and it is worth about 9.5p today,’ he says. ‘IXEurope is a tech hotel company that makes servers and is in a very fast-growing sector. It floated at approximately 30p and is currently being bid for. The price now is 130p. We bought it just after it floated. There was an obvious demand but very little supply in the sector and this company had a very good reputation for being a leader in its field.’

Identifying opportunities

According to Hargreave, the management team selects particular stocks for a range of reasons – Intelligent Environments, for example, was a value purchase as the market cap was so low compared to its potential. ‘We tend to buy a relatively small amount of a particular stock, follow the company and if it delivers the way the management has promised, then we buy more,’ he continues. ‘It’s always a land of opportunity or a land of disaster in the micro-cap sector. It is a very wide area and there is a huge variety of different companies involved in different sectors.’

The £46.8 million Marlborough UK Micro Cap Growth Fund is a unit trust focusing on smaller UK companies. Currently ranked tenth out of the 52 funds in the Investment Management Association (IMA) UK Smaller Companies Sector, it invests in firms with a market cap of £100 million or less, although a significant proportion of the portfolio is dedicated to those with a market cap of less than £50 million at the time of purchase.