The fund was flagged as not delivering value to investors after a long period of poor returns.
Fund manager Baillie Gifford has closed its £141 million British Smaller Companies fund after a sustained period of poor performance.
The strategy has lost investors 5.4% on average a year for five years, compared with a 0.6% annual gain for the Numis Smaller Companies (ex Investment Trusts) index. This equates to a 24.1% loss over five years, according to the fund group.
It was hit by the collapse of Wandisco after shares were suspended in March following suspected fraud. At the time, it was a 5.7% position in the portfolio, according to media firm Citywire.
The fund was the only strategy flagged by Baillie Gifford last year as “not providing value” after it underperformed over five years relative to its benchmark and target.
In its 2022 Value Assessment Report, the fund group said: “Recent market headwinds have resulted in underperformance, but the team is hesitant to overact to recent news flow and remains confident about the prospects for the businesses, which are on average growing significantly faster than the benchmark index.
“The investment team sees this as exactly the wrong time to change investment approach and we support this conclusion, so no further action has been taken for now.”
- Jeff Prestridge: my big problem with Scottish Mortgage and other trusts
- Investors dump UK funds and buy bonds
But now a decision has been made to close the fund. It ceased trading on 27 June and all shareholders will receive cash to the value of their holdings within 30 days.
Baillie Gifford said the fund was closed because investment performance had not met clients’ expectations over the long term and investor demand for the sector and the fund itself has been weak for a number of years.
It added that the group has increasingly adopted a global perspective to research around smaller companies, rather than just focusing on UK names.
Baillie Gifford is under pressure at the moment as investors turn against the expensive “growth” shares that it specialises in buying.
- Should you invest in Baillie Gifford funds or investment trusts?
- Scottish Mortgage: our latest thinking on AI, Elon Musk and China
Assets under management at Baillie Gifford fell more than £100 billion in 2022 as investors took money out of funds and its portfolios dropped in value.
Its flagship investment trust, Scottish Mortgage, has fallen nearly 60% in value from its peak in November 2021, taking its market cap to below £10 billion.
A couple of years ago, the financial regulator introduced a requirement for asset managers to demonstrate how each of their funds provides investors with value for money. These annual Assessment of Value reports outline whether value is being provided to the end-investor across a number of metrics such as fees, costs and performance.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.