As the macroeconomic environment improves, it is perhaps unsurprising that some of the best-performing investment trust sectors in the past year have been related to smaller companies.
Figures from the AIC show that for the 12 months to March 31 2014, the IT Global Smaller Companies sector produced the best return – based on a £100 lump sum – of 147.84 per cent.
In addition, the top-10 best-performing sectors in this period include the European Smaller Companies sector average slipping into second place with a return of 138.69 per cent, while the UK Smaller Companies sector placed third as it delivered an average return of 136.76 per cent.
With Europe recording GDP growth of 1 per cent in the final quarter of 2013, according to the Organisation for Economic Cooperation and Development (OECD), and Mario Draghi, president of the European Central Bank (ECB) conscious of protecting the euro, things are looking up on the continent.
Meanwhile in the UK, the International Monetary Fund (IMF) forecasts UK growth of 2.9 per cent in 2014, the highest in the G7, potentially outperforming even the US whose growth forecast is 2.8 per cent.
As Tim Mitchell, head of sales for investment trusts for JP Morgan Asset Management, points out: “There is lots of interest in smaller names. It probably goes back to the growth point, when economies are growing small caps tend to capture that growth quite effectively.”
He adds in the past 12 months in particular there has been a trend in finding ways to capture the growth and improved conditions in the UK, including interest from investors in the mid and small cap area of the UK market.
Mr Mitchell explains: “Economic growth is good, we have benign inflation, interest rates feel like they’re going to remain low and strengthening sterling.
“So all of that combined has meant it is good conditions for people to rerate those UK-focused stocks such as housebuilders.”
But interestingly while the smaller companies have been dominating the best-performing sectors, the top-10 individual investment companies for the 12 months to March 31 includes just two UK smaller companies focused trusts – Athelney and Strategic Equity Capital.
Instead the majority of the 10 best-performing companies – four of them – are related to property, including Asia Pacific property. The top of the table is the Alpha UK Multi-Property investment company, which has delivered – based on a £100 lump sum – 415.78 per cent for the year, suggesting property is another area benefiting from the economic recovery in the UK.
There are currently no European small- or large-cap trusts in the top-10 performers, yet Mr Mitchell notes that the continent, and smaller companies in particular, are an area of significant interest.
“It is an area which is perhaps not being a top performer or poor performer but an area of interest. People are looking at Europe again after being underweight for such a long period of time.”
Given the volatility in the macroeconomic environment and the suggestion that interest rates in the UK could rise as soon as next year, with the US expected to follow suit a few months later, it might be that income starts to become more of a draw for investors.
