The Diamond Jubilee isn't the only reason to celebrate - despite the prevailing economic gloom, UK smaller cap funds have remained resilient over the last three years, delivering returns that have significantly trounced their large-cap peers.
A new study from research based-platform FundExpert.co.uk shows that investors in the average fund invested into UK smaller companies over the last 10 years would have been rewarded with returns of 151.36 per cent. In contrast, those invested in a UK All Companies fund, which primarily invests in larger companies, would have received a relatively miserly 58.85 per cent.
"Stock-pickers need not be put off by the double dip - there is a rich vein of potential in small-cap funds," says Brian Dennehy, managing director of FundExpert.co.uk. "Unlike larger companies, smaller businesses are not overwhelmed by broader macro trends. The best can maintain outstanding performance regardless of what is happening in the wider economy because they are positioned in niche growth markets and can act as gloom busters.
"The resilience of small-cap funds in the last recession has a good chance of continuing into this period of negative growth. My advice to investors looking for stocks that buck the downward trend is to think small and think British."
The research also dispels the myth that smaller companies are more volatile - over the last 10 years the average UK smaller companies fund has been 18.3 per cent less volatile than the UK All Companies sector.
UK small companies are increasingly looking overseas for revenue and are therefore becoming less reliant on the UK economy. Popular holdings in the best performing UK smaller companies funds include IP Group, Brammer and Oxford Instruments, which has China as its second-largest market after the US. For more British winners see our interview, Backing outstanding British companies with Chris Hutchinson, fund manager of the Unicorn Outstanding British Companies Fund.
| Fund | 6-month performance (total return bid-bid) | 3-year performance (total return bid-bid) |
| Baillie Gifford British Smaller Companies | 15.8 | 87.53 |
| Liontrust UK Smaller Companies | 14.64 | 78.01 |
| Henderson UK Smaller Companies | 13.2 | 75.84 |
| Jupiter UK Smaller Companies | 13.02 | 64.97 |
| Lazard UK Smaller Companies | 11.96 | 57.89 |
| IMA Sector | ||
| UK Smaller sector average | 6.59 | 58.81 |
| UK All company sector average | 4.42 | 34.09 |
| Indices | ||
| FTSE Small Cap (ex investment trusts) | 12.95 | 36.9 |
| FTSE 100 | 5.84 | 37.57 |
Source: FundExpert.co.uk
Notes: Performance up to 22 May 2012.
