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David Clark said in 12-18 months' time, small-cap funds would have delivered more attractive returns and the first half of 2008 would be remembered as a great buying opportunity.

Despite the extreme short-term volatility of the past few months, Mr Clark said small caps would outperform the wider market over the next three years.

The manager said current conditions made short-term predictions impossible, but share prices would soon recover to more accurately reflect companies’ true growth prospects.

"The market is fraught with difficulty and companies are being crucified for any bad news," said Mr Clark. "Hedge funds have been very quick to short on the back of the most minor wobble and that has made investing all the more difficult.

"Over the long term, however, prices will recover to accurately reflect past and future growth prospects and I expect small caps to outperform the wider market over the next three years. I strongly believe now is a good buying opportunity."

Industrials is the portfolio’s largest sector weighting, at 38.9 per cent, followed by oil and gas at 15.1 per cent and consumer services at 12.4 per cent.

The fund has returned 71.6 per cent over three years until 19 May 2008, outperforming the IMA UK Smaller Companies sector, which returned 37 per cent. It is ranked third out of 48 funds in the peer group, according to Morningstar.