Winning millennium fund that’s soared 1,178%

Managers have been running an eclectic diversified portfolio of 150-200 shares

So how’s the new millennium started for you? Not too well, if you were guided by expert opinion at the start. There was the millennium bug scareathon, then the bursting of the dot come bubble, followed by the 2001-2 recession, the split-level investment trust debacle, the doldrum year of 2007, then the onset of the banking crash.

How was it possible for private investors to make any decent return since 2020?

Well, step forward the holders of Marlborough Special Situations fund, for whom it must seem the champagne is now on permanent tap.

Against a volatile backdrop over the past 29 years, this £1.45 billion fund based in Bolton has gained 1,178 per cent since the end of 1999.

It has outperformed peers and the UK smaller companies sector (up by some 400 per cent over the same period) in almost every year, with an ability to outperform in falling markets as well as excelling in buoyant ones: for example, during the financial crisis in 2008 and more recently in 2011 and 2014.

How has it achieved this? There is no runaway single holding success such as Google or Amazon which accounts for its success. Nor will you find any household name global companies among its leading holdings. Rather, the managers have been running an eclectic diversified portfolio of between 150 and 200 shares, with each limited to a maximum of two per cent.

Among the fund’s top ten holdings are S4 Capital, CVS Group, JD Sports Fashion, Future plc (a UK media company with more than 50 magazines in fields such as video games, technology, films, music and photography), Spirent Communications, Restore plc (providing services to offices and workplaces) and XP Power.

But Marlborough is just one outstanding success in a smaller companies sector that has excelled since 2000. Other notable winners here are ASI UK Smaller Companies, a £1.9 billion fund run by Harry Nimmo since January 1997, with a gain of 922 per cent, and Investec UK Smaller Companies (up 899 per cent).

Also featuring in the top 25 since 2000 are Schroder US Smaller Companies , rising 858 per cent), Blackrock UK Smaller Companies (778 per cent) and Aberforth UK Smaller Companies (755 per cent) .

What of funds at the bottom of the table? Spare a thought for investors in Threadneedle Japan, for whom early riches in the new millennium have passed them by. The fund languishes at the bottom of the pile with a negative return of 10.6 per cent since the end of 1999.

Threadneedle Japan was hit by a ferocious sell-off with the bursting of the dotcom bubble. The one consolation here is that performance has picked up notably over the most recent five years, with a gain of 65.6 per cent.

Scottish Widows Japan Growth, ASI Japanese Growth Equity and Invesco Japanese Smaller Companies (UK) also feature at the bottom of the performance table, with each registering total returns of less than 5 per cent over the past 20 years. the fall in sterling, together accounting for £12 billion. Strip this away and the underlying annual increase falls to just 1.8 per cent, the lowest gain for five years.

The gain is further reduced when currency effects are stripped out. Some two-fifths of UK dividends are declared in US dollars, so the exchange rate between sterling and the dollar makes a significant impact on the value of dividend payouts.

As the pound weakened last year due to Brexit fears and concerns of a Jeremy Corbyn-led Labour administration, the exchange rate boosted the value of dividends in sterling terms by £2.4bn in the first three quarters of the year, driving the headline figure up by two per cent. Once this factor is removed, the dividend growth rate falls to just 0.8 per cent.

Top dividend holders dominate pension funds and are prominent in unit trust and investment trust portfolios: Royal Dutch Shell, HSBC, BP, Rio Tinto and British American Tobacco. Indeed, the top 15 dividend payers last year accounted for £62.9bn of the payout total, or almost two-thirds (64 per cent) of the overall figure.

Link’s chief operating officer Michael Kempe warns that the two drivers of the headline dividend total are likely to have the opposite effect this year, predicting a payout total falling back to £102.7bn. And, as always, dividend payouts are critically dependent on overall profit growth and a thriving global economy – features that can never be taken for granted.