Henry Ellenbogen, the best-performing major mutual fund manager in the world last year, has warned that valuations in the small companies that he focuses on have become too lofty, and doubts that they can replicate the sterling returns of 2013.

Mr Ellenbogen manages T Rowe Price’s $15.8bn New Horizons fund, one of the biggest and oldest “small-caps” investment vehicles in the US. Last year he made returns of more than 49 per cent, making New Horizons the best-performing mutual fund with assets of more than $10bn in the world.

Small companies enjoyed a roaring year in 2013, as signs of firmer US economic growth encouraged investors to pour money into the asset class. The US Russell 2000 index of small-caps soared 37 per cent last year, its best performance in a decade and markedly outpacing the blue-chip S&P 500’s 29.6 per cent gain for the eighth time in the past decade.

But this year the small-caps gauge has edged down 2.8 per cent, and Mr Ellenbogen said in an interview with the Financial Times that a repeat of last year’s performance was “highly unlikely”.

“Small-caps as an asset class will probably not outperform for another year. We don’t believe valuations can go much higher . . . There are still opportunities to make money, but in the short term valuations are very high,” Mr Ellenbogen said.

Underscoring its view of the more limited opportunities, T Rowe Price closed the New Horizons fund to new investors late last year for only the fourth time since it was established by founder Thomas Rowe Price Jr in 1960.

Last year’s performance was helped by an early investment in Twitter, which successfully floated last year, and a big shareholding in Netflix, the subscription-based video streaming service.

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