Investment trust: Eaglet
Sector: UK smaller companies
Manager: Peter Webb
Three-year total return (to 12.9.03): -17.15%
Rank in sector: 13/30
Sector average: -14.81%
Discount: 12%
Market capitalisation: 91m
Top 10 holdings: Harvey Nash, Trifast, Robert Walters, Mears, Deltron Electronics, Eurodis Electron, NSB Retail Systems, Solitaire, Volex, Acal
Peter Webb's contrarian style - based on seeking undervalued, long-term growth opportunities - may not have paid off in the short term but, over the long term, the results speak for themselves. Over five years, the trust has returned 158.68 per cent, compared with 64.23 per cent growth from the average smaller companies investment trust.
And although smaller companies trusts tend to trade at a discount to their larger peers, Mr Webb believes the lack of significant research on smaller companies presents opportunities for a knowledgeable stock-picker. He thinks smaller companies offer extra growth potential because of their high beta, which is the result of their high sensitivity to the economic cycle, plus a combination of low valuations and low liquidity.
He believes that the next bull market has begun, pointing out that corporate activity (director-buying plus interest from venture capitalists) "is forcing fund managers to value businesses on real worth, rather than short-term fashion".
He uses a concentrated portfolio of large positions in stocks he backs (from a universe of sub-£150m companies). He looks for companies with strong management, sound financial controls, a growing market and good cash-generation to finance growth.
Mr Webb's portfolio is currently dominated by support services and electronic and electrical equipment, which make up over 50 per cent of holdings by value, because of the economic sensitivity of these stocks. But this high weighting, combined with 28 per cent gearing, does make the trust vulnerable should equity markets collapse. The discount is narrower than the sector average (15 per cent), but still offers value as Eaglet has often traded at a premium.
