IFSL Marlborough UK Micro-Cap Growth Class P - Accumulation (GBP)

Long-term performance has been exceptional. Our analysis puts this down to the team's ability to select strong companies that have gone on to perform well. Remember past performance isn't a guide to future returns. All investments will fall as well as rise in value, so you could get back less than you invest.

UK Smaller Companies have particularly suffered amid global stock market volatility. They're seen as more sensitive to the state of the economy than larger multinational companies. Smaller companies are also less liquid (their shares are harder to trade), which can heighten falls if many investors try to sell at the same time. That said, during periods of market stress, the fund has historically held up better than the IA UK Smaller Companies sector average.

Feld and Santa Barbara like companies that are easy to understand and have the potential to grow significantly over time. They look beyond short-term noise and construct a long-term view. This is where we think they can add value. Before any investment is made, they like to meet with company management and assess their quality.

The team like to 'run their winners'. Healthy balance sheets are preferred, and they don't like excessive levels of debt, although they acknowledge it may be prudent for companies to take advantage of the current ultra-low interest rate environment.

With more than 1,000 companies to pick from, the team have a broad investment universe. For a stock to be considered for the portfolio it must have a market cap of £250m or below at the time of purchase. Many of their holdings are listed on the AIM index whilst several have graduated into the FTSE 250 the index of medium-sized UK companies.

Smaller companies are higher risk. While some may end up several times larger, some could do badly or even go bust. To mitigate the risk of one company significantly impacting performance, the managers run a very diversified portfolio with over 170 companies - far more than their peers in the sector. Historically this figure has been over 200. The managers have recently increased the maximum holding size from 2.5% to 4%. They think this enables them to express greater conviction in their best ideas.

This fund can invest in unquoted companies. They currently only invest in a small number and don't intend to make any further investments in companies not listed on the stock market. We assess the liquidity of this fund and receive regular liquidity data from the fund group. We are comfortable that the diverse investor base and large number of holdings means the fund has adequate liquidity for retail investors. However, investors should be aware that investment in unquoted companies is higher risk and they can be considerably less liquid than those traded on established stock exchanges.