Investing in small firms pays big rewards

FUND FOCUS:UK Equities

Best performer five years:Standard Life Synergy UK Smaller Companies + 51%

Worst performer five years: Irish Life Fidelity UK 7 G -10.21%

Average: +3.6%

DESPITE THE market turbulence in 2007 and 2008, a resurgence in UK equity markets over the last two years has resulted in a strong performance by funds invested in British equities for the last five years.

According to Moneymate, Irish gross domestic funds invested in UK equities have returned an average of 3.6 per cent in the five years to January 24th. The best performer was Standard Life’s smaller company fund, which returned 51 per cent during the period.

The fund, managed by Harry Nimmo, specialises in companies listed on the London Stock Exchange with a market capitalisation of €100 million to €2 billion. According to Nimmo, the success of the fund over the last five years is attributable to its focus on smaller companies.

“Despite the fact that larger companies are seen as low risk, the opposite has been in fact the case,” Nimmo says. “Smaller companies have shown consistent growth, with minimal dividend cuts. In fact, in 2008, underlying dividend increase was close to 14 per cent.”

He also contends that a focus on smaller-cap companies means a broader spread of exposure. Among the sectors covered by the Standard Life small company fund are retail, healthcare, industrials, electronics and chemical.

The fund’s largest weighting is in online fashion company ASOS, followed by Hargreaves Lansdown and Domino’s Pizza.

It also holds a number of Irish names, including Paddy Power and Kentz, while First Derivatives and Belfast-based Andor Technology have been strong performers.

Nimmo is reasonably optimistic about 2011. “While there are concerns on an economic level, at corporate level, export-led industries in particular are holding out better than expected.”

At the other end of the spectrum, Irish Life Fidelity’s UK Growth Fund Series 7 returned -10.21 per cent during the period. According to a spokeswoman for the fund, the underperformance was due to the downturn in 2007 and 2008 and the fund’s focus on larger companies. However, the fund has rebounded strongly recently, growing 65.14 per cent over the last 2 years.