Marlborough UK Leading Cos ups small-cap exposure to 2007 level

The manager of the £41m Marlborough UK Leading Companies fund has taken small-cap exposure to its highest level since 2007, attracted by growth prospects and exposure to emerging markets.

Richard Hallett has upped the AIM, small and mid-cap stock weighting to 40% of the portfolio, with FTSE 100 holdings scaled back to 60% from the fund’s most defensive position in early 2009, when it was 75% blue chips.

The focus is on companies whose earnings come from overseas, particularly Asian and BRIC markets.

“This has not been an overnight move. It has been a gradual process of rotating out of larger more mature companies and steadily replacing them with younger companies with more scope for growth,” he said.

“Over time, the risk of double-dip recession has receded. Growth, albeit anaemic, is forecast in the US and here in the UK, while in the Brics, where many of these younger companies do a lot of their business, the picture looks a lot stronger.

“Yes, China has raised interest rates, but if that slows growth to 5% or 6% a year, rather than a less sustainable 10%, then that is good news.

“So with the economic picture looking more positive, we see increasing exposure to younger dynamic growth companies as the right balance.”

Within the small and mid-cap portion of the fund, the breakdown is 20% in FTSE 250 stocks and 20% in small caps and AIM.

The fund is holding a total of nine small cap or AIM-listed companies. Hallett, who co-manages the fund with small-cap specialist Giles Hargreave, recently added SKIL Ports & Logistics, which plans to develop a new port near Mumbai in India. It listed on AIM in October

“We like the idea of holding businesses focused on trade in India and ports are in a special position because they are difficult to replicate,” Hallett said.