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.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
news
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Finacial products from our partners
Property search
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Spectators at the Isle of Wight music festival watch the World Cup on the big screen. Betting promotions were a feature of the tournament
Lenders have been accused of persuading vulnerable people to borrow expensive credit

Payday loan firms accused of bombarding vulnerable people with nuisance phone calls

Payday loan firms have been accused of bombarding financially vulnerable people with nuisance phone calls, after a debt charity reported that a third of its clients were plagued by the messages.

The foundation proposed that the Government sets up a scheme to help people avoid losing their homes

Mortgages: 'Homeowners could trade down to shared ownership to defuse rate rise timebomb'

A plan to defuse a “mortgage debt timebomb” when interest rates rise is published today amid warnings that 2.3m households could struggle with their repayments.

Current accounts are too costly and confusing, says CMA as it announces investigation into Britain's biggest banks

Competition regulator to investigate market where it's hard for customers to make comparisons and the big banks' charges can be set too high
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

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

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Java Developer - Banking - London - Up to £560/day

    £500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

    HR Business Analyst, Bristol, £350-400pd

    £350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

    Account Manager - (Product & Account Management, Marketing)

    £26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried