Fund Manager Focus by Jenny Lowe

Chris Bamberry, manager of the Scottish Widows Investment Partners (SWIP) UK Smaller Companies Fund, explains that ‘UK equities enjoyed their first positive month of the year in March, amid growing signs of risk appetite. There was little difference in the performance of smaller and larger companies.’

Strength in small-cap diversity
The fund he manages aims to provide investors with long-term capital growth through investment in a diversified portfolio of companies which, when bought at least, are quoted among the small-cap ranks.

Bamberry looks to hold between 50 and 60 stocks within a portfolio but believes that ‘each individual holding should still have a meaningful impact upon overall fund performance’.

He adds, ‘We continue to look to increase our exposure to companies that are sensitive to changes in the economy, but valuations of these firms have not always been attractive. UK equities made further gains in May amid a growing belief that the worst of the financial crisis may be over, and larger companies outperformed smaller ones.’

Potential in property plays
Bamberry suggests that value in the small cap arena can be found within the property sector. With this in mind, he points to real estate firm London & Stamford Property.

‘London & Stamford is a closed-ended investment company interested in commercial property, including office, retail and distribution assets,’ he explains. ‘In November 2008, the share price hit an all-time low of around 84p, but has recovered nicely and is now around 117p. This is a good medium-term holding.’

He also likes the investment case of property services star Connaught, whose shares could move higher in the months ahead. ‘Having moved from AIM to the Full List, Connaught has proven to be a well-managed business, and I definitely think that the firm has good future growth prospects.’

The SWIP UK Smaller Companies Fund itself has had a rocky start to the year, and performed behind its benchmark in May. The performance, according to Bamberry, was pegged back largely due to the impact of Greene King. ‘Along with many of its peers, the brewer saw its share price fall following a report from the Business and Enterprise Committee that was highly critical of pub companies. Other stocks to adversely affect performance were online gambling software provider Playtech and heating, plumbing and pipeline equipment supplier BSS Group.’

But as the markets appear to have started to recover and investor confidence returns, Bamberry and his team have begun to focus on more cyclical stocks. He explains, ‘Cyclical recovery is creating some green shoots, and smaller companies will benefit from that.

‘I am now focusing on those companies that are re-addressing their balance sheets and will benefit from the Government’s quantitative easing programme, which will put more pounds in the pockets of consumers.’

Nurturing growth
With a three-to-five-year investment horizon in mind, Bamberry singles out AIM-traded CareTech as one to watch in particular: ‘This company provides residential care and supported living for those with learning difficulties and mental health issues who can’t live on their own. Having had a tough time in the volatile markets seen over the past 12 to 18 months, CareTech’s share price is now 310p.

‘While having shied away from the large, risky equities for the past year or so, focusing more on the safer holdings, I think that you can play some of these good health stocks in the medium to long term.’