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

Suggested Topics
Finacial products from our partners
Property search
  • Get to the point
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: Financial Adviser

    £20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

    SThree: Graduate Recruitment Resourcer

    £20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

    Guru Careers: Application Support Analyst / 1st Line Support

    £25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

    Guru Careers: .NET Developer / Web Developer

    £45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence