Mike Prentis, who runs the £786m BlackRock Smaller Companies investment trust, said there are few bargains among companies focused on the UK economy, despite share price falls.
The BlackRock Smaller Companies trust has returned 30 per cent over the past year to 24 March, compared with 14 per cent for the average fund in the AIC UK Smaller companies sector in the same time period.
Mr Prentis said there are many shares in the UK smaller companies sector that are “cheap, but maybe not bargains.” He cited the retail and restaurant sectors as examples.
The fund manager added while the UK economy has performed better than many people had expected over the past year, “the reality is that the UK economy is growing at a slower pace than many other economies".
"The first thing we look at is the fundamental prospects for the company. But then it is about companies that benefit from the headwinds of a growing economy," Mr Prentis said.
"And other economies are growing at a faster pace than the UK, so we prefer to be exposed to those economies.”
The largest investment in the trust is Dechra Pharmaceuticals. This is a company Mr Prentis has owned shares in for about 15 years.
He said: “It is a very well run business that just keeps doing the things we as shareholders want. It has grown organically, but when it has made acquisitions they have been sensible.”
Harry Nimmo, who runs the £1.4bn Standard Life UK Smaller Companies fund, is another investor who is keen on the shares of Dechra. He said the company’s share price has performed well during periods of recent market strife as it has delivered financial results that are ahead of expectations.
Mr Prentis said there are about 500 companies from the 1,000 small caps listed on the UK market that he considers investible.
His policy is not to own more than 5 per cent of the shares of a company, which means he can rarely invest in companies with a market below £50m.
Anthony Leatham, investment trust analyst at Peel Hunt, said the longer term track record of the BlackRock Smaller Companies trust is “exemplary”.
He added the trust has “14 consecutive years of outperformance, driven by a mix of stock picking, gearing and sector allocation. In addition, the trust has seen 14 years of consecutive annual dividend increases.
He pointed out that the portfolio is stock specific, but uses themes including: advantaged cash flow compounders, growth companies with predictable revenues, innovators, and microcaps.
"The manager continues to be progressively more cautious on the outlook for the UK economy and particularly those companies exposed to UK consumer spending,” he said.
David.Thorpe@ft.com
