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Holdings in India make up around 30 per cent of one of the funds © EPA-EFE

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Active funds have not acquitted themselves well lately. AJ Bell research has found just 30 per cent of active open-ended funds from major sectors beat the relevant market tracker in the first half of 2022, while Columbia Threadneedle analysis shows that consistent outperformers have become astonishingly rare.

Grim as these findings are, there are still active portfolios that have comfortably beaten passive rivals over a variety of timeframes. And while there are many ways to judge a good active fund, one convincing argument is that they offer the most potential while still relatively small in size — run by an investment team that is hungry for success and, more importantly, free from the risk that running vast sums of money forces them to adapt their investment preferences.

This is where our annual list of small, overlooked outperforming equity funds comes in. Continuing a series that began in 2019, we screen the funds universe for small portfolios producing impressive risk-adjusted outperformance. Our methodology is described below.

Historically, we have highlighted 10 funds from the major equity regions that have produced a superior annualised level of risk-adjusted outperformance over a three-year period, while also checking that these portfolios are available on at least some of the major retail platforms. The task has proved harder than usual this year: the volatility seen over the past 12 months has reduced the number of eligible funds, and on top of that some of the names identified by our process this year are effectively unavailable to retail investors.

This article was previously published by Investors Chronicle, a title owned by the FT Group.

As a result, just eight funds appear in our 2022 list, and it is notable that not a single global growth fund meets the criteria. No fund from the Investment Association (IA) UK All Companies sector makes it into this year’s list either. So it is other regional equity offerings that have taken up the slack. And while many funds in our list are inevitably sitting on paper losses for the past year, they still meet the right criteria over our three-year assessment period.

Asia has provided two outperformers, one of which is especially familiar: Matthews Asia Small Companies makes its fourth consecutive appearance, having continued to produce strong returns but not yet reached a size that would exclude it from our analysis.

The investment team likes companies with a competitive advantage — be it pricing power, distribution capability or differentiated technologies or services — and businesses with an innovative streak. The investment process also plays into one of the major appeals of this particular equity region, by favouring companies that cater to rising domestic consumer demand.

The fund had 60 holdings at the end of July, with 41.9 per cent of the portfolio tied up in the 10 biggest positions. China and Hong Kong made up nearly 30 per cent of the fund, as did India, with the team noting that stock selection in the latter helped performance in the first half of 2022. If the focus on competitive advantages makes the fund sound very much like many other quality growth portfolios, the team stressed in a mid-year update that it does “look to maintain a balance between growth and value exposure while staying broadly diversified across sectors and countries in the region”.

2022’s small fund outperformers
SectorFundThree-year annualised information ratio versus benchmarkSize (£mn)Ongoing charge (%)
Asia Jupiter Pacific Equity0.7947.31.2
Asia Matthews Asia Small Companies0.5275.71
Emerging marketsCarmignac Emerging Markets0.7321.10.95
EuropeSVM Continental Europe1.1649.31.16
EuropeInvesco European Focus0.8132.51.1
JapanJanus Henderson Japan Opportunities0.4329.80.86
USClearBridge US Value0.5237.20.99
UK smaller companiesTeviot UK Smaller Companies1.272.20.85
Source: Investors’ Chronicle/ FE Analytics and fund provider literature

It is worth noting that the fund’s lead manager Vivek Tanneeru has only been in the role since summer 2020 and therefore cannot lay claim to the full three years of outperformance. But the fact this fund has ticked the right boxes so consistently suggests a robust investment process that justifies its place in the list.

Asia and the emerging markets can offer some fairly mixed performance for investors, but fans of these regions as a play on strong demographics may also warm to Carmignac Emerging Markets, which seeks to benefit from the “dynamism and growth potential” of its investment universe. Unlike the Matthews Asia fund, it tends to target mid and large-cap stocks, and like other funds in this space it does have big positions in certain stocks that feature prominently in the underlying market, with Samsung Electronics and Taiwan Semiconductor accounting for nearly 15 per cent of the portfolio at the end of August. The team claims to seek out cash-generative businesses in underpenetrated sectors and an allocation of nearly 30 per cent to consumer discretionary stocks suggests the focus on demographics mentioned above.

Europe has been facing significant challenges, but active funds fishing in its markets can still outperform significantly, as the inclusion of two portfolios from the region shows. However, one comes with a mixed record. SVM Continental Europe, another fund to feature in last year’s list, has fallen hard in the past 12 months, but posted enormous gains beforehand. It had around half of its assets in mid-cap stocks at the end of July, a bias that may well explain some of the painful recent performance. Invesco European Focus has looked steadier, taking a modest hit in the past year while also having delivered big gains before market volatility set in.

We broadened out the range of sectors we assess this time round, and screening the Investment Association’s smaller company sectors led to the inclusion of Teviot UK Smaller Companies, whose underlying investment process is “based around the core fundamentals of the company viewed through the lens of a value investor”. Recent prominent holdings included power generation business Drax and waste management specialist Renewi — though the fund had just around a fifth of its assets in the top 10 holdings, with a focus on diversification common to many small-cap portfolios.

Value investing is a common theme of this year’s list, a trend that is most explicitly emphasised by the appearance of FTF ClearBridge US Value. The fund is down in dollar terms so far in 2022, but has fared better than the broader US equity market. It has large sector allocations to financials and healthcare, but the fund is also prepared to back bombed-out shares that are typically more associated with growth investing: Meta was its biggest portfolio holding at the end of July. With markets twisting and turning, it remains to be seen whether contrarian managers can continue to stand out via their risk-adjusted returns in the months and years ahead.


We sought funds with more than £10mn but less than £100mn in assets. The existence of this lower bound is partly due to the heightened risk that funds with less than £10mn might soon close or merge into other products. Funds that pass the £100mn mark, on the other hand, tend to attract the attention of some bigger investors and can rapidly balloon in size: in short, their qualities do not stay hidden for long.

Rather than looking at simple performance numbers, this list screens for funds with high annualised information ratios versus their benchmark over three years. We prefer the information ratio to other metrics because it measures outperformance but also accounts for the level of risk a manager has taken to deliver it. A ratio of 0.4 or higher tends to indicate a decent level of manager skill.

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*Investors Chronicle is a 160-year-old publication owned by the Financial Times. It offers an expert and independent view of the investment market and provides educational features, investment commentary, actionable tips and personal finance coverage. To find out more, visit

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