The £1.6bn Marlborough Special Situations fund is to move from the Investment Association's UK Smaller Companies sector to the IA UK All Companies sector, following an FCA-approved investment policy change.

While the fund's primary focus will remain smaller companies, co-managers Eustace Santa Barbara (pictured) and Guy Feld - who previously ran the vehicle alongside Giles Hargreave until he stepped back from managing money last year - will now be able to hold a higher proportion of mid- and large-cap companies.

Under the fund's current investment policy, it must hold a minimum of 80% in UK smaller company equities, whereas Marlborough Special Situations will now look to hold at least 60% from August this year.

Its definition of UK smaller companies will also be updated, to include those with a market cap of less than £2.5bn. Its current policy defines smaller companies as the bottom 10% of the UK market, which currently means firms that are less than £1.9bn in size.

Marlborough said the changes will give the mandate "greater freedom to run its winners", as well as to "identify exceptional opportunities among large-caps and the bigger mid-cap companies".

It holds a further two funds that reside in the IA UK Smaller Companies sector - both of which are also run by Santa Barbara and Feld - and which will remain unchanged.

The £1.6bn Marlborough UK Micro-Cap Growth fund holds at least 80% of its portfolio in companies with a market cap of £250m or less when the initial purchase is made, while the £371m Marlborough Nano-Cap Growth fund predominantly holds companies with a market cap of £100m or less at the time of purchase.

Richard Goodall, CEO of Marlborough, said: "The success of Marlborough Special Situations has been built on a tried and trusted investment strategy, a key tenet of which is ‘run your winners'. The investment team identify smaller companies with exceptional potential and then stick with them as they prosper and grow.

"Over the years that has meant the number of larger companies in the portfolio has increased, as outstanding smaller companies grow and become mid-cap and large-cap businesses.

"Clearly we do not want the team to be forced to trim or sell out of positions in companies they know well and believe have bright prospects for the future. So, we are updating the fund's investment policy so they can continue to hold these outstanding businesses as they go from strength to strength."

Examples of companies that are liked by Santa Barbara and Feld, and which will now remain part of Marlborough Special Situations' portfolio, include JD Sports, Dechra and Games Workshop, the latter of which has grown from £700m to £3.5bn in market cap since the team's initial investment in 2017.

Over three years to time of writing, Marlborough Special Situations has returned 38.9% compared to its average peer's gain of 34.9%, according to data from FE fundinfo.

First published by our sister title Investment Week