Small caps may be one of the best sectors for your clients to invest in, according to Schroders, as ...
Small caps may be one of the best sectors for your clients to invest in, according to Schroders, as small caps tend to outperform when an economy is emerging from recession.
Ira Unschuld, fund manager of Schroder's US Smaller Companies Fund, says research by the asset management firm suggests small caps stocks and funds underperform when entering a recession, however, they are normally one of the best performing sectors once the end of the downturn is in sight.
Unschuld says the small caps sector fared much better than expected following the September 11 terrorist attacks in New York, and there are now signs of a market bounce back.
"After the events on 11th September, we were very pleased with the resilience of the equity market, both in terms of the speed with which the stock exchange reopened and the fact that liquidity did not totally dry up for smaller companies - which was a positive sign for the market as a whole.
"All in all, we ended the third quarter with small cap funds having seen net inflows of US$2 billion, which was much better than the market as a whole which saw outflows from equity mutual funds. Since the end of last quarter we've seen the market bounce back somewhat and we're starting to see some signs of stability," says Unschuld.
"Looking forward, clearly the US is entering a recessionary period. Typically smaller companies under perform on the way into recession and very strongly outperform on the way out. There's no reason to expect it to be very different this time. We think we've had some of the underperfomance in this September time period, continues Unschuld.
"We're going to continue doing what we've always done over the last 10 years. We're going to invest in growing companies at attractive valuations, under followed, under appreciated companies that can deliver strong earnings growth. Ultimately, we are investing in companies that are growing earnings irrespective of the economy."
The Schroder US Smaller Companies unit trust currently holds £145m in assets under management.
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