Special Report on Investment Trusts (7): Confidence begins at home: Rupert Bruce asked three senior analysts to recommend areas and trusts for 1993 and found a consensus of opinion

THE THEORY that smaller companies' stocks outperform larger ones over reasonably long periods of time should be borne out in 1993, according to investment trust managers.

The Independent spoke to senior managers at three of the largest investment trust groups, who between them manage a fifth of the total pounds 27.3bn UK investment trust market. When asked which investment areas and trusts they favoured, a clear consensus emerged in favour of UK smaller companies.

The managers said they expected smaller companies' stocks to perform well in reaction to lower interest rates and improving economic conditions. They pointed out that these smaller companies were the most sensitive to domestic economic conditions because they participated in relatively little overseas trade.

Also in favour were the emerging stock markets of South-east Asia and Latin America. Managers expect these markets to offer high rewards, but warn that they are high risk.

Lord Mark Fitzalan Howard, chairman, Fleming Investment Trust Management: 'I like the UK but that is on the basis of the hoped-for recovery really being now likely to materialise, although there is still an element of hope there.

'I think the other area which we would like to suggest is the Far Eastern markets, excluding Japan, where we believe there is going to be considerable growth in 1993.

'We would include Hong Kong in the firm belief that the posturing at the moment (the diplomatic row between Chris Patten, the Governor, and China over the degree of democracy in the colony) appears perhaps more extreme during this preliminary stage of debate than perhaps is, in reality, the case and that a solution will be found.

'Undoubtedly it is going to be volatile, but I think that for those people who can look at it for the long term it is probably no bad thing to start buying.

'In all we would expect returns in excess of 15 per cent from the region including Hong Kong, Malaysia, Singapore, Philippines, Thailand, and Indonesia.

'On actual investment trusts within our portfolio, I think we would include Fleming Far Eastern Investment Trust.

'Another is Fleming Fledgling Investment Trust, the smaller companies trust. That is about 40 per cent in the UK. We believe that if we are going to see a turnaround in the UK economy then this neglected area ought to make itself felt.

'The trust also has a little under 30 per cent in the US, about 30 per cent in Europe and 8 per cent in Asia.'

Michael Moule, a senior investment manager, Touche Remnant: 'I still think the UK is going to be a good market, even though it has had a strong run. You are in an interest rate-driven market, and I am still bullish that interest rates are going to come down. That is one of the keys to it. Just like the US, you are going to have people saying, 'I cannot believe how expensive this market is'.

'It is going to be driven by money not earning enough in the bank and the building society rather than some wonderful economy and you are going to have to push out your hopes of the economy picking up until 1994.

'But personally, it is Europe and particularly France, Holland and Spain that excites me most.

'My view is that eventually the Europeans will wake up to realise that in the short term the main problem is lack of growth and rising unemployment rather than inflation.

'If I am being judged over the year I would be very happy to be in TR European Growth. It also happens to be on a 25 per cent discount to its net asset value (at time of writing), which is very high. This is because Europe is so unpopular and because it invests in smaller companies whose share prices rise later than larger ones.

'I think the UK has already had the big company effect so you really ought to go for medium and smaller companies where you have had this very big bear market. You have spent five years since October 1987, when they reached a peak, in a bear market. So I quite like TR Smaller Companies.

'I also like TR Far East Income because I still see South-east Asia doing rather well.

Jeremy Tigue, a director of Foreign & Colonial Management: 'In the American market we think smaller companies will do better than larger companies. Any improvement in the US economy will be particularly good news for US smaller companies. There are a lot of them out there, they have done very badly in the 1980s, although they have done a bit better in the last couple of years.

'We are also quite hopeful about prospects for UK smaller companies. The only caveat is that everyone seems to be thinking the same way and we saw in the States a bit of a false dawn a couple of years ago.

'One can't help feeling that there is a danger that might happen to smaller companies this year here. But the prospects for smaller companies here with lower interest rates should be good.

'Europe we think looks pretty dull at the moment with the economic situation in Europe and particularly Germany looking increasingly dire. The stock markets might take heart from a reduction in interest rates in Europe, but I doubt that will happen until later in the year.

'We are also still very keen on Latin America, although that has been very up and down this year after having had a terrific 1991. There could be terrific opportunities here.

'I would recommend our F&C Smaller Companies investment trust. That has about 45 per cent in the UK and 35 per cent in the US, so if we are right about the US and UK smaller companies both recovering that should do very well.

'If the conventional wisdom about UK smaller companies is wrong and they have a bad year at least you have the protection of the US smaller companies.

'For the brave we would say Latin American Investment Trust. It is looking quite attractive now but it is not a widows and orphans stock.'

(Photographs omitted)

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee