Research from Brian Dennehy in the run up to next week’s Diamond Jubilee shows the benefits of buying British, especially further down the cap scale.
MYTH 1: Smaller companies are more volatile
“Over the past ten years the average UK Smaller Companies fund has been 18.3% less volatile than the UK All Companies sector, populated by funds mostly investing in larger companies.”
MYTH 2: Smaller companies suffer more in recession
“Despite the gloomy economic outlook and the UK being back in recession, shares in the FTSE Small Cap index rose 12.95% in the past six months, whereas the FTSE 100 rose just 5.84%.
“Conventional thinking suggests the shares of large, well financed, dividend paying companies are better equipped to perform well in the current environment. However, the evidence is that they are more volatile and at the mercy of the latest news on the likes of QE and LTRO.
“Smaller companies, on the other hand, have been outstanding. An investor in the average fund invested into UK smaller companies over the past ten years would have been rewarded with returns of 151.36%; this contrasts with a relatively miserly 58.85% for UK All Companies fund sector, invested primarily into larger companies.”
MYTH 3: Smaller companies are heavily exposed to the UK economy
“UK small companies are increasingly looking outside the UK for a source of revenues, consequently becoming less reliant on the ups and downs of the UK economy.
“For example, China is Oxford Instruments’ second largest market after the United States. Going forward they expect a progressively more from Asia, which made up 38% of Oxford Instruments’ market in 2011.
“Dialight and Next Fifteen Communications are among the top ten holdings of Liontrust’s UK Smaller Companies fund, and these businesses derive over 80% of total sales from foreign sales.”