UK small firms flying despite the downturn
New research says investors could lose out if they ignore companies close to home.
Investors shouldn't ignore the potential of British businesses, according to new research.
Brian Dennehy of FundExpert reckons the UK small-business sector "represents a rich vein of UK potential in this time of economic gloom".
His evidence? "The UK smaller companies sector was the most profitable IMA (Investment Managers Association) sector, bar none in 2012," he points out. The sector climbed 22.6 per cent over the year.
"And in the last six months small caps have outperformed their large-cap peers with the FTSE Small Cap index climbing 17.65 per cent compared to the 11.14 per cent increase recorded by the FTSE 100."
Mr Dennehy believes that there's more upside to come – with the right stocks.
"While the easy money was made in 2012, the key to investment returns in 2013 will be finding the exciting British businesses that are growing profits despite the economic backdrop, and identifying the funds that invest in them," he said.
Adrian Lowcock of Hargreaves Lansdown said the recent outperformance comes as no surprise.
"The continuation of smaller companies to deliver is not too surprising as they do tend to perform well when stock markets are rising, confidence grows and investors are willing to take on more risk," he explained.
Mike Prentis of BlackRock Smaller Companies Trust, said recent economic good news, such as the UK avoiding a triple-dip recession, strengthens the argument for small firms.
"In the past, UK smaller companies have tended to do well coming out of recession and going into periods of growth," he said.
Successful smaller companies can offer investors massive potential especially if they are able to grow and take on established market leaders.
"We have seen the likes of Rightmove and ASOS dominate their markets when only 10 years ago they were not even heard of," Mr Lowcock pointed out.
FundExpert examined the holdings of the top-performing UK smaller companies funds to discover which stocks were the most popular. They came up with three. First is buy-to-let lender Paragon which is showing positive signs after a few years in the doldrums as a result of the slump in the property market since 2008.
"After a difficult recession the last two years have seen a steady recovery in the share price and conditions are looking bright," said Mr Dennehy.
Next is Xaar, which supplies industrial inkjet printheads.
"It's just published its strongest results statement in years and ahead is potential entry into the semi conductor market," he said.
Finally, Mr Dennehy picks translation business RWS.
"It has strong intellectual property through its skilled employees and benefits from the global growth in research and development."
Rather than investing in the individual stocks, you can access them through a fund, such as Franklin Smaller Companies, Mr Dennehy said.
However, over the last six months the sector's top performer was Fidelity's UK Smaller Companies fund which rose 27.3 per cent. That was followed by funds from Ignis, up 20.57 per cent, and R&M, up 19.31 per cent. Franklin's fund climbed 17.33 per cent.
Meanwhile Mr Lowcock favours Old Mutual UK Smaller Companies .
"At a sector level, it is overweight in electronics, technology and media, as well as UK housebuilders which fund manager Daniel Nickols believes will benefit from government support and improving profitability," he said.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Culinary experts in The Netherlands thought it was 'fresh' and 'tasty'
- 1 Marijuana use by teenagers does not result in a lower IQ or worse exam results, study finds
- 2 Watch what happened when food critics were unknowingly served McDonald's
- 3 Jimmy Carr's controversial Oscar Pistorius joke goes too far at the Q Awards
- 4 Australian café owner sparks debate after saying 'No' to having unruly children on premises
- 5 NHS staff banned from drinking tea or coffee on the job because it looks like they're not working hard enough
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
iJobs Money & Business
£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...
120-150k: Accountancy Action: We are looking for an experienced CFO from a min...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village