• Home
  • Multi-Asset
  •  
    Retirement
    • Pensions
    • Income
    • Investment
    • Regulation
    • Estate planning
    • Equity release
  •  
    Your profession
    • Adviser tips
    • Business models
    • Companies
    • People
  • Regulation
  • Tax planning
  • Protection
  • Diversity
  • Events
  • Whitepapers
  • Industry blogs
  • EM and Asia spotlight
  • Newsletters
  • ESG spotlight
  • Sign in
  • Events
    • Upcoming events
      event logo
      Professional Adviser's Working Lunches in partnership with Orbis Investments - 2019

      Join us in March for the Professional Adviser Working Lunch series in partnership with Orbis Investments.

      • Date: 05 Mar 2019
      • Knutsford, Leeds, Surrey, Bristol
      event logo
      Professional Adviser Working Lunches 2019 - Baillie Gifford & First State Investments

      Professional Adviser is delighted to announce the launch of the new Working Lunches in partnership with Baillie Gifford and First State Investments. Travelling across the UK to provide valuable market insights for Senior Financial Advisers.

      • Date: 13 Mar 2019
      • Southhampton, Worcester, Durham, Norwich, Liverpool, Exeter, Sheffield, Leicester, Nottingham
      event logo
      Professional Adviser 360 2019

      The highly anticipated Professional Adviser 360 conference is taking place on 25th April 2019 at The Brewery in London.

      • Date: 25 Apr 2019
      • The Brewery Chiswell Street London EC1Y 4SD, London
      event logo
      Fund Manager of the Year Awards 2019

      The 2019 Fund Manager of the Year returns on Thursday 27th June 2019, Grosvenor House Hotel, London. Save the date.

      • Date: 27 Jun 2019
      • Grosvenor House Hotel 86-90 Park Lane Mayfair London W1K 7TN, London
      View all events
      Follow our events

      Sign up to receive email alerts about our events

      Sign up
  • Whitepapers
    • Find whitepapers
      Search by title or subject area
      View all whitepapers
  • Sign in
  •  
    •  

      Personalise your on site experience

      Download and use the apps

      Access your subscription from outside of the office

      Get relevant news and insight straight to your inbox

      Sign in
     
     
      • Newsletters
      • Account details
      • Contact support
      • Sign out
     
  • Follow us
    • RSS
    • Twitter
    • LinkedIn
    • Newsletters
    • YouTube
  • Register
  • Industry blogs
  • EM and Asia spotlight
  • ESG spotlight
Professional Adviser
Professional Adviser
  • Home
  • Multi-Asset
  • Retirement
  • Your profession
  • Regulation
  • Tax planning
  • Protection
  • Diversity
 
  •  

    Personalise your on site experience

    Download and use the apps

    Access your subscription from outside of the office

    Get relevant news and insight straight to your inbox

    Sign in
 
 
    • Newsletters
    • Account details
    • Contact support
    • Sign out
 
Professional Adviser

Outperformance in small caps is difficult to sustain

  • /home/progs/thaira/archive/invweek/mark/uk/199907/26uk01.xml
  • 29 October 1999
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  
0 Comments

The small cap rally shows no sign of running out of steam although even small cap managers think it ...

The small cap rally shows no sign of running out of steam although even small cap managers think it cannot continue at its current pace.

In the year to date the asset class has risen some 33%, buoyed by the strength of the UK economy, ongoing corporate activity and the relatively cheapness of small caps.

Catherine Stanley, UK fund manager at Framlington, says: "We are not going to see another 33% rise - that would be too much to hope for but over the year we expect small companies to outperform."

A more cautious David Taylor, head of UK smaller companies at HSBC, adds: "Predictions are difficult although small companies are still relatively cheap. However, you have to think there could be a slight shift in what has driven the market so far."

John Thornton, UK fund manager at Aberdeen, believes a small cap portfolio can outperform but only if managers rely on stock picking. He adds: "It will come down to those companies that perform well in profit terms and deliver growth that is as good, if not better, than the market expects."

Stanley believes one reason for the small cap revival this year is the simple fact that the asset class has produced poor share price returns for too long.

She says: "Small companies have underperformed for the past four years so it was about time the market rallied. Last year was a total disaster both in terms of absolute and relative performance - the Small Cap Index being left behind by some 24%."

The reason, she says, was a slowing economy had begun to add weight to fears of recession.

Stanley adds: "This year has seen a turnaround in economic circumstances while corporate activity has helped to buoy the Small Cap Index and promoted interest in the sector as a whole."

Taylor points to four main driving factors - the economy, a wide small cap discount, corporate activity and good liquidity levels.

He says: "Small companies tend to do well when the rest of the economy is growing. At the start of 1998 small companies were on a 40% discount and now the liquidity environment is good. A heady influx of corporate activity has kept the market strong and to a point it has been self-fuelling.

"Fund managers have probably been surprised by the number of bids for small companies and many have seen good returns. Smaller companies are higher risk but produce higher reward. However, when the economy is going in their favour the risk factor reduces."

Thornton says: "From 1996 to 1998 large caps outperformed small caps. As the economy slowed and inflation came down, nominal growth became low and profits disappointed in smaller industrial areas."

In a low inflation environment with tough sales growth and high-street prices under pressure, it was only larger companies that managed to get earnings up. As a result they were rerated against the Small Cap Index.

Robyn Hall

bull points

l Positive interest rate environment.

l Corporate activity in sector.

l Small caps still look cheap.

bear points

l Small caps have already done well.

l High growth needed for outperformance.

l Inflation fears on the increase.

Related articles

  • Quilter acquires 200 advisers in Charles Derby deal
  • Government launches mid-life MOT website
  • Perspective buys northwest England IFA Investment Principles
  • Government will not 'force pace of change' in AE
  • Tweet  
  • Facebook  
  • LinkedIn  
  • Google plus  
  • Send to  

More news

  • Companies
Quilter acquires 200 advisers in Charles Derby deal

Undisclosed fee

  • 21 February 2019
  • Retirement
Government launches mid-life MOT website

First mentioned in Cridland Report

  • 20 February 2019
Ian Wilkinson
  • Companies
Perspective buys northwest England IFA Investment Principles

Second acquisition of 2019

  • 20 February 2019
Guy Opperman
  • Regulation
Government will not 'force pace of change' in AE

Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.

  • 20 February 2019
Abbie Knight
  • Your profession
Abbie Knight: Get your business ready for the £5.5trn wealth transfer

Four key areas to focus on

  • 20 February 2019
Back to Top

Most read

Woman and apps
How online 'nudges' are encouraging women to invest
Schroders and Lloyds unveil financial planning business
Abbie Knight
Abbie Knight: Get your business ready for the £5.5trn wealth transfer
Sean Kulan: How prepared are solo-regulated firms for SM&CR?
CEO of the IA Chris-Cummings
IA launches communication guide in response to FCA criticism
  • About Us
  • Contact Us
  • Marketing solutions
  • Terms and conditions
  • Privacy and Cookie policy
  • RSS
  • Twitter
  • LinkedIn
  • Newsletters
  • YouTube

© Incisive Business Media (IP) Limited, Published by Incisive Business Media Limited, New London House, 172 Drury Lane, London WC2B 5QR, registered in England and Wales with company registration numbers 09177174 & 09178013

Digital publisher of the year
Digital publisher of the year 2010, 2013, 2016 & 2017