The Analyst: Small really is beautiful in Cazenove’s cap boutique

 

If you cast your mind back to the beginning of 2012 the investment world was full of worry.

Events in Europe suggested a breakup was a clear possibility, data from China indicated a “hard landing” from its previously stellar growth rate, a possible Iranian threat was looming and the American elections and so-called “fiscal cliff” were a source of uncertainty. Don’t get me wrong, it hasn’t all changed for the better overnight, but things are starting to look up.

In Europe, the can has been kicked more firmly down the road. Meanwhile, Chinese data are beginning to look more positive, and areas which have been performing well this year might surprise a few people.

Given the macroeconomic concerns many people thought large, defensive stocks would be the place to be. Yet it turns out that many have been lacklustre. In the case of pharmaceuticals such as GlaxoSmithKline, they have lost most of the gains made in 2011.

Instead, among the best performers are funds investing in small and medium-sized companies, one exceptional performer being Cazenove UK Smaller Companies run by Paul Marriage, which is up around 32 per cent since the beginning of the year.

What I like about this fund is that it is a genuine smaller-company portfolio, not a mid-cap fund in disguise.  It has about 10 per cent in “microcaps”, companies under £50m in size, 28 per cent in £50m-£100m stocks and 32 per cent in firms of between £100m and £250m, with the balance in stocks over £250m.

Mr Marriage observes that microcaps are at present the laggards when it comes to share-price performance as there is little interest from fund managers. Interestingly, it is high net-worth private investors that are more active in this area.

Mr Marriage is aided by John Warren, the fund’s deputy manager, whom he believes is especially good at timing buys and sells.

It is extremely important for fund managers to have someone they can rely on when out of the office.

Mr Marriage is satisfied that lines of communications are short and that decisions can be made quickly and efficiently. The pair do not waste time debating the economic climate but spend the majority of time meeting company management.

Time and again I hear smaller company managers feel the quality of the management is the most important ingredient they look for, and the meetings they have are extremely helpful in this regard. There are no fancy in-house proprietary systems. It’s a fund where good old-fashioned shoe leather is used to find out what makes companies tick.

Despite the strong run this year the Paul Marriage is still finding plenty of opportunities: companies such as Scapa, an adhesive tape manufacturer; Emis, which develops and supplies software to GP surgeries; Avon Rubber, whose products include gasmasks and tubing for dairies; and Xaar, a supplier of industrial inkjet printheads.

None of these areas seems particularly exciting, which is perhaps why they have been overlooked.

Energy and mining, areas which many investors do find exciting, are absent from the portfolio. Mr Marriage feels he can offer little added value here as share prices are often driven by macroeconomic factors and commodity prices more than anything else.

The excellent performance of this fund, and the sector as a whole, is perhaps indicative of the changing world of small caps. Thirty or 40 years ago they were much more closely tied to the UK economy. Today, half of company profits across Mr Marriage’s portfolio are from overseas.

Although Mr Marriage sees the mid-cap index as being a little overpriced, he still thinks there is plenty of value in smaller companies and feels increased merger and acquisition activity could benefit a number of his holdings.

Small-cap shares can be exceptionally volatile but for those investing for the long term, I believe it should continue to be a worthwhile area to have exposure to. It tends to be under-researched – meaning talented fund managers who really do their homework can show a clean pair of heels to passively managed funds.

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Arts and Entertainment
Morgana Robinson
arts + entsIt is not easy interviewing Morgana Robinson. Here's why...
News
video
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Arts and Entertainment
Jerry Hall (Hand out press photograph provided by jackstanley@theambassadors.com)
theatre
Arts and Entertainment
tv
Finacial products from our partners
Property search
Sarah Bibby and Robert Allinson, with their children Charlotte and Ethan, confronted the ‘difficult’ questions’ posed by making a will

Simon Read: There may be trouble ahead for cohabiting couples who don’t make a will

Your children have it all, your partner gets nothing

Halfords is gearing up for Christmas

Bargain Hunter: Find the deals that have real value beneath the Black Friday hype

Halfords is gearing up for Christmas

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors

Mark Dampier: You take a chance but VCTs have sorted the wheat from the chaff

Fields of dreams: venture capital trusts help young companies to grow, potentially delivering big returns for investors 

The FCA has imposed £1.1bn in fines on five banks over forex trading practices

Simon Read: Catch 22 for borrowers who are turned down by banks

There are many reasons for people to turn to high-cost credit, but being turned down by their banks for a loan is one

The battle between the banks to attract more current account customers moved up a level this week when Yorkshire Bank (and Clydesdale Bank) launched a market- leading £150 switching incentive.

Money Insider: Would £150 make you switch banks?

The £150 incentive from Yorkshire and Clydesdale runs from now until 28 February next year, but you must use the official Current Account Switching Service (CASS) and close your existing account to qualify

The short slope that takes women all the way down to living on the streets

For the rising number of homeless women, the struggle is compounded by health problems and by losing their children

If you’ve got a card in your wallet that charges a low standard interest rate, there’s less financial impact if you can’t repay your full statement balance.

Money Insider: Save money with the right credit card

Research from Sainsbury’s Bank Credit Cards this week revealed that 15 per cent of people making a large purchase on their plastic didn’t use one with 0 per cent interest on purchases

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent. (image: Rex Features)

No Pain No Gain: Vodka causes a hangover as shares in Stock Spirits slump

Last week was hangover time, when Stock Spirits, a vodka producer, distilled a profit warning that sent its shares crashing more than 25 per cent

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

Mark Dampier: Strong returns can be found if you go the opposite way to the crowds

Investment melting pot: the price of gold may have fallen but Artemis Strategic Assets believes its value cannot be debased

The Bank of England announced that interest rates will stay at 0.5 per cent

Simon Read: Banks can’t blame the economy for their low rates

Interest rates are currently as low as 0.1 per cent

The schemes work by using collective power to negotiate better deals with gas and electricity suppliers

Simon Read: Don’t blow a fuse with your energy supplier, just switch

The energy watchdog Ofgem has slammed Scottish Power, while Citizens Advice reports a string of complaints about it

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management charity to clear the £20,000 he owed

Simon Read: The only place for debt is out in the open, don't be afraid to ask for advice

John Lush from Hampshire got into debt with payday lenders and had the help of a debt management adviser to clear the £20,000 he owed

Seven Families campaign aims to raise awareness of financial damage caused by illness or disability

The campaign is handing financial help to seven families for a year, along with support and advice in how to get their careers back on track
The 10th birthday of broadband in Britain was marked with a projection in 2010. But the infrastructure is still being rolled out

Families pay the price of superfast broadband

Bills are going up for households around the UK as providers invest in better infrastructure. Emma Lunn explains why - and what to do

How to cut the cost of car insurance: A five-step guide to getting a better deal

Premiums are on the rise again but motorists don't have to take a back seat on the price of their cover, says Rob Griffin
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

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible
    Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

    Look what's mushrooming now!

    Meat-free recipes and food scandals help one growing sector
    Neil Findlay is more a pink shrimp than a red firebrand

    More a pink shrimp than a red firebrand

    The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
    Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

    Oeuf quake

    Bill Granger's cracking egg recipes
    Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

    Terry Venables column

    Wayne Rooney is roaring again and the world knows that England are back
    Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

    Abject leadership is allowing football’s age-old sores to fester

    Those at the top are allowing the same issues to go unchallenged, says Michael Calvin