Omam finds small-cap stocks ‘compelling’
UK small-cap companies have compelling business models and can provide good returns to investors looking for growth in their portfolios, a fund manager has claimed.
Daniel Nickols, head of the UK small-cap desk at Old Mutual Asset Managers, said these companies are outperforming their larger counterparts by serving the needs of emerging markets and developing “compelling business models” in the UK.
He said small companies, such as Oxford Instruments and Fenner, were “at the cutting edge” of technological development and providing vital services to emerging economies, enabling them to capitalise on the upward growth of countries such as China.
Mr Nickols warned: “Those who have bypassed these stocks are denying themselves a very fruitful space in bull and bear markets across the past decade.”
He also pointed to companies operating solely in the UK, such as Smart Metering Systems, as examples of companies which have are operating in “niche markets” and are predicted to enjoy sustainable growth.
Mr Nickols acknowledged the UK small-cap market is “poorly understood” but the constant rejuvenation of the small-caps index provided plenty of scope to identify mis-priced stocks.
“We don’t have to adopt a position on the biggest companies in the index, as we would with the FTSE 100 – we can hand-pick the stocks we like.”
Ben Yearsley, investment manager for Bristol-based Hargreaves Lansdown, said: “We think this the best UK small-cap team around, as it has a proven long-term track record. The managers tend to pick on themes and trends that show lots of potential, emerging markets being one of them.”