Almost half of the most consistently overperforming investment companies invest in small and unquoted firms, according to new research.
The Association of Investment companies (AIC) analysed members’ performance over a decade, and found that nine of the top 20 firms invest in such companies.
Six of the nine top performers invest in small companies, while three are in the private equity sector and invest in unquoted companies.
AIC communications director, Annabel Brodie-Smith, said the rankings were a “useful” tool, but cautioned: “past performance isn’t a guide to the future”.
Brodie-Smith also told City A.M. that the recent suspension of Neil Woodford’s Equity Income fund demonstrated that open-ended funds “do not work well for illiquid assets, whereas investment companies do”.
She attributed this to the ability of closed-end investment companies to “focus on investing in the long term”, allowing them to invest in illiquid and smaller assets, which are more risky and can be harder to sell.
Companies like these are not open to new investors, whereas those with open-ended structures, such as Woodford’s fund, are more vulnerable to short-term market pressures. The fund suspended trading on 3 June following a flurry of investor withdrawals.
Finsbury Growth & Income, which focuses on securities of UK listed companies, topped the rankings. It was followed by Jupiter European Opportunities and Blackrock Smaller Companies in second and third place respectively.
Nick Train, portfolio manager at Finsbury, said the firm had not “consciously targeted” consistency of return but had pursued “a highly strategic investment approach, also marked by meaningful portfolio concentration”.
“The satisfactory outcome to date is the result of big, long-term investment calls being given time to come off.”