But Brittain says valuations of smaller companies have been so low in recent times that many have started to screen well as value stocks – that is the earnings they are achieving today are not being reflected in the share prices.
Chris McVey, UK smaller companies fund manager at Octopus Investments says the average premium at which UK smaller companies are being sold at to private equity buyers is over 40 per cent, "which shows that the asset class is cheap", he added: "the earnings expectations for UK small caps are roughly in line with the earnings expetations of the Nasdaq, but the Nasdaq trades at about twice the valuation levels."
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