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How to spot smaller companies winners

There’s additional risk with small-cap funds but the good ones pay off
How to spot smaller companies winners
  • Small caps look set for growth 
  • Investors should keep an eye on manager discipline

Funds that focus on smaller companies tend to outperform their benchmark indices by a greater proportion than their large-cap peers over time. The average share price and net asset value (NAV) total returns of UK smaller companies investment trusts increased by 99 per cent and 68 per cent, respectively, over the five years to 19 March, according to broker Winterflood. By contrast, the Numis Smaller Companies Index ex investment companies index has increased 51 per cent over the same period. 

Compare this with investment trusts focused on larger UK companies, for which the average share price and NAV total returns were 54 per cent and 46 per cent, respectively, over five years to 19 March. The FTSE All-Share index, which includes the largest UK-listed companies, increased 35 per cent over this period. 

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